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Jonathan Yates
Are Foreign Income Stocks the Best Buy?

With the Dow Jones Industrial Average (NYSE: DIA) and the Standard & Poor’s 500 Index (NYSE: SPY) performing so strongly, it would seem that all blue chip stocks would be trading at a premium.  While that might be true for those in the United States, there are many excellent foreign firms that are trading at deep discounts due to the economic travails in Europe and Asia.  Not only are these healthy firms with robust futures, many have high dividend yields.

There is now a reverse pattern of The Great Recession.  During that time period, economic growth in the United States and Europe fell while it rose in emerging market nations such as Brazil, India, China and Russia.  Although the United States is not exactly roaring back with economic growth, the stock market has certainly performed well.  But there is still a bear market for foreign stocks due to economic growth woes abroad.

The chart below shows how the Dow Jones Industrial Average and S&P 500 have both performed well as the main exchange traded fund for emerging markets (NASDAQ: ECON) has plummeted.

As a result, there are many foreign companies now trading at a discount with superior dividend yields: BHP Billiton (NYSE: BHP) is one.

An Australian natural resources, BHP Billiton does well when China is booming.  But as growth in the People’s Republic of China is down, so is the share price for BHP Billiton, down almost 20% for 2013.  But BHP Billiton has tremendous upside.  It is well-placed to rebound when China does.  Until that happens, BHP Billiton has a yield of over 3.5%.

As detailed in a previous post on this site, so is Petrobras (NYSE: PBR), a major oil company based in Brazil.  There are many foreign oil companies trading lower, such as Eni Spa (NYSE: E) and YPF (NYSE: YPF).  With the share prices lower, the dividend yields are higher.  Eni Spa now has a dividend yield of over 5%.  For Petrobras, the dividend yield is more than 4%.

The average dividend for a member of the Standard & Poor’s 500 Index is around 2%.

Foreign phone companies and utilities are also trading at lower prices.  That results in higher dividends.  As an example, China Mobile (NYSE: CHL), the world’s largest mobile phone company, is down more than 7% for 2013 with a dividend nearing 4%.  Businesses such as these have solid futures as it is very rare to read about utilities, phone companies, and major oil firms going out of business!


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