Let’s face it: Yields on all kinds of investments just aren’t what they used to be.
U.S. Real Estate Investment Trusts (REITs) are sporting some of the lowest dividend yields in history …
Thirty-year Treasury bonds were recently yielding a measly 4.9% …
And junk bonds are only paying out 2.6 percentage points more than Treasuries, on average. That’s the smallest “spread†in a decade!
Throw in the insidious impact of inflation — and the long-term decline in the dollar — and you’re looking at extremely paltry real returns.
But what if there was a relatively simple way to boost your portfolio’s yield without taking on huge amounts of risk? What if you could get juicier dividends, capital appreciation, and the potential for currency gains? You can!
The Time Looks Right for
This “Triple Play†Strategy
There are a ton of large, stable, foreign companies out there. They’re based in countries with liquid, Westernized stock markets and currencies that are appreciating relative to the U.S. dollar.
What’s more, many of these stocks boast yields that beat the pants off of what you can get on comparable stocks here in the U.S.
Perhaps the best part is that you don’t have to open up a foreign brokerage account or jet-set around the world chasing these stocks. Instead, you can buy many of them right here as American Depository Receipts (ADRs) trading on U.S. exchanges!
So, if you play your cards right, you can score profits in three ways:
First, you have the potential for good old-fashioned capital gains.
Second, you’ll receive those juicy dividend payments.
Third, you also stand to make money from any gain the company’s home currency makes against the dollar. Let me explain …
In “Buy American? Not in bonds!†I told you how investing in foreign bonds can result in a currency kicker when the dollar falls in value. Well, the same thing happens with foreign stocks — even if you buy their ADRs.
Here’s how it works: Although ADRs are bought and sold in U.S. dollars, their prices reflect moves in both the underlying stock and moves in that stock’s home currency.
Let’s say you buy an ADR of a company based in Germany (where they use the euro). If the company’s European shares go up 1%, your shares should also go up 1%. However, if the euro gains 1% against the dollar that same day, your ADR should appreciate by roughly an additional 1% to reflect the new currency exchange rate. So your total gain would be close to 2%.
Now, are there risks involved? Of course. Foreign stocks can lose value just like their domestic counterparts. And if the dollar were to jump in value, those currency gains could turn into currency losses. That’s why you don’t want to shovel your keep-safe money into these kinds of investments.
Still, if you’re searching for ways to boost your portfolio’s yield, and you have some money you can afford to risk, high-yielding, overseas stocks just might be worth a look.
How You Can Start Making
Triple Plays of Your Own
You’re going to find the best yields in a handful of sectors and industries, such as utilities, financials, commercial real estate, and telecom. From there, you’ll have to examine each individual company to make sure it’s a solid holding.
If you want an easy way to get a diversified stake in high-yielding foreign shares, you can look into an exchange-traded fund like the WisdomTree DIEFA Fund (DWM).
This ETF has only been around since last June. It also doesn’t have a lot of trading volume. But it holds large, dividend-paying stocks like HSBC Holdings and Deutsche Telekom, so it might be worth a look.
Or, for individual stock candidates, you can scroll through a list of foreign stocks that trade on the New York Stock Exchange. The NYSE’s website allows you to sort through stocks by country or industry.
Of course, Martin and I have our favorites. They’re stocks that yield 4%, 5%, or more, and that we believe have the greatest potential for gains from currency moves and capital appreciation.
One is a diversified European financial firm that’s shedding underperforming businesses and expanding in new markets. Another is an Asian telecommunications provider that’s churning out steady earnings and yielding more than 6%.
Bottom line: You deserve higher yields. So I encourage you to take a look around the world. I think you’ll be pleasantly surprised by what’s out there.
Until next time,
Mike
P.S. If you want to learn more about the triple play strategy, and get my current picks, sign up for Safe Money Report today!
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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