An International High-Yield Stock To Buy Today
We’re barely a month into 2014, and it’s already promising to be an interesting year.
In this month alone, natural gas is up 20%… shares of Apple plunged double-digits after a bad earnings announcement… and emerging markets have gone belly-up.
In fact, they have been absolutely pummeled since the beginning of the January.
As you can see from the chart above, emerging markets — as represented by the WisdomTree Emerging Markets Equity ETF (NYSE: DEM) — have fallen 9% since Jan. 1.
Michael Vodicka explains the bearish sentiment towards emerging markets in his most recent issue of High-Yield International:
| The Fed’s quantitative easing (QE) program supported low borrowing costs in the United States for the past few years. That enabled large institutional investors to borrow at a low rate in the United States and deploy that capital into high-yield securities in emerging markets, such as emerging-market bonds, which are currently yielding around 10% in Brazil. That low-risk carry trade was extremely profitable when the 10-year Treasury was trading below 2%. But now that interest rates are back on the upswing and yield spreads are compressing, this low-risk trade is becoming less profitable. That is driving a wave of recent capital outflows from emerging-market stocks and bonds. According to fund-tracking firm EPFR Global, emerging-market equity and bond funds saw $30 billion in outflows in 2013. |
The massive capital outflow has caused a huge sell-off in emerging market assets. Stocks, bonds, currencies… you name it. If it is attached to a developing country, chances are it’s in the red for the year.
#-ad_banner-#In order to stop the bleeding, central bankers in these economies are being forced to raise interest rates. This has many worried that rising borrowing costs will make it harder for domestic corporations to borrow money — further damaging profitability and putting downward pressure on growth. Until the situation stabilizes, the emerging-market sell-off could continue.
But that’s not to say all international stocks look unattractive right now.
Also in his essay, Michael told his readers about U.K.-based GlaxoSmithKline (NYSE: GSK), a $125 billion pharmaceutical company with a 4.8% dividend yield and solid growth potential. As Michael says:
| GlaxoSmithKline is one of the largest pharmaceutical and healthcare products companies in the world. For international investors looking to diversify away from emerging markets and into markets with more stability, this is a great pick. Although the company is targeting emerging markets for long-term growth, it currently derives most of its revenue from developed economies such as the United States, Japan, France, Germany, the U.K. and Italy. The company’s hefty dividend is a big attraction for income investors. The dividend also helps shelter GSK’s share price from short-term volatility. Its 4.8% yield is a 67% premium to the 10-year Treasury. That outsize yield is the product of steady dividend increases: Its three-year dividend growth rate is 7%, and its five-year growth rate is 6%. But Glaxo has been careful not to overextend itself financially. Its payout ratio has ranged between 48% and 71% since 2009. But Glaxo is by no means a pure dividend play. As one of the world’s leading pharmaceutical companies, Glaxo is in position to capitalize on a global demographic shift that is driving big demand for health care products and services. According to the World Health Organization (WHO), the number of people worldwide over the age of 60 will double from 11% to 20% by 2050. With the global population expected to top 10 billion, that means there will be more than 2 billion senior citizens worldwide. And Glaxo is in position to cash in on that major demographic shift. |
Yet as Michael goes on to note, despite the company’s bullish outlook it’s still only trading at a forward P/E ratio of 14 — a slight discount to the industry average of 15. For a stock with a healthy dividend payment of plenty of growth potential, that’s about as close to a bargain as you’re going to find in this market.
P.S. GlaxoSmithKline isn’t the only international stock rewarding investors with big dividend payments right now. In his most recent research report, “Why You’re Not Hearing About 79% of The World’s Highest-Yielding Stocks,” Michael told his readers about a Netherlands-based telecom leader paying a 13.3% yield, a Canadian utility company paying 11.8%… and even a New Zealand infrastructure company paying 19.5%.
The good news is, you can buy most of these stocks without leaving the New York Stock Exchange. To learn more about these stocks — including several names and ticker symbols — or to find out more about international investing (and why it’s a must for any income investor’s portfolio) click this link.