Emerging markets have certainly been the place to be. In the
past 10 years, the
iShares MSCI Emerging MarketsIndex (
has returned an astounding average of +21.5% a year, compared to
+5.1% for the S&P 500.
However, this outperformance has been lost on many
investors who have likely considered emerging markets an exotic
indulgence of growth investors. But emerging markets are an
increasing force on the world stage that can't be ignored -- even
by income investors.
These nations represent 40% of the world's population and already
control two thirds of its industrial output. And their influence is
International Monetary Fund (
says emerging markets accounted for nearly all of the world's
growth last year, and they're forecasted to grow at nearly three
times the pace of the rest of the world in 2010.
Investors don't normally associate dividends with emerging markets.
Many companies in these fast growing economies have used excess
cash to fund expansions rather than pay dividends in the past. But
things are changing.
According to Citigroup, emerging market stocks will pay about 2.6%
in dividends on average this year, compared to an average of about
2.7% from stocks of companies in the United States and Western
Europe. One UBS strategist recently said that emerging market
dividends could grow an average of +15.4% this year, and +17.7% in
Superior growth in emerging markets, combined with rising
dividends, has led to a unique situation with emerging market
dividend-paying stocks. Some of these stocks are poised to not only
pay superior dividends to many U.S. stocks, but they also
offerearnings growth and
Here are a few stocks worth a look.
1. China Nepstar (
, as the largest retail drugstore in China, is poised to profit
from China's rapidly growing middle class. The company sells items
you might expect a drug store to sell -- prescription drugs,
over-the-counter drugs, soap, razors and toilet paper. It operates
more than 2,500 stores in 64 cities across China. The stores are
generally located in the very heart of Chinese middle class growth
-- well established residential communities in major Chinese
The size of this middle class was estimated to have grown to about
80 million people in the middle of this decade. Looking ahead, the
has estimated this number will expand to a mind-boggling 700
million by 2020. While the vast majority of this middle class is a
long way away from affording fancy cars, they can buy soap and
The stock started paying dividends in 2008, and the last regular
dividend, paid in May, was $0.28 per ADR. The company also paid a
special $1.50 dividend in December. The combined dividends give the
stock an astounding 40% trailing
. However, the special dividend can't be counted on in the future,
but the regular dividend still translates to a solid 6.4% yield.
2. Philippine Long Distance Telephone Co. (
is the largest telecom provider in the Philippines, serving more
than 60% of the nation's fixed lines and about 55% of the cellular
market. While telecom doesn't offer that much growth, the
Philippines has been a hot market.
grew at a whopping +7.9% in the second quarter, compared to +1.6%
growth in the United States. Companies on the Philippine stock
exchange have seen
growth of +23% this year, and corporate return on equity and
dividends are at all-time highs. The Philippine market has soared
+32% so far this year and has been the second best performing Asian
The stock pays two dividends a year that have totaled $4.80 per
American Depository Share (
) -- equating to a yield of about 7.5%. The company has a strong
history of raising dividend payments -- dividends per ADS have
risen more than +600% since 2005. According to Thomson Reuters,
analysts' consensus expectations are for the telecom to grow
by +8% in 2010.
3. CPFL Energia SA (
is the largest private power utility in Brazil, with a 13% share of
Brazil's power distribution market, and one of the largest
companies in South America. The company primarily serves Brazil's
wealthiest state, Sao Paulo.
Earnings growth for CPFL is tied to increases in overall energy
usage resulting from a growing national economy, as well as
acquisitions. And the Brazilian economy has been on fire. First
grow an astounding +9%, and the IMF estimates that Brazilian GDP
will grow an average +7.1% for 2010.
CPFL pays two dividends per year -- in May and October. The May
dividend was $2.30 per share. The October dividend has already been
declared and is estimated to be (depending on
exchange rates) $2.74 per share. Total 2010 dividends of about
$5.04 will translate to a solid 6.4% yield.
Action to Take -->
The world of dividend paying stocks is expanding. While emerging
markets are still generally riskier places to invest, they are less
so than they've been in the past. These and other companies
represent a solid way for dividend investors to add more of a
growth element to the portfolio. All three companies are selling at
reasonable valuations and can be purchased at current prices.
-- Tom Hutchinson
Tom has a 15-year history as a financial advisor with UBS
constructing investment portfolios. Tom's background includes a
NASD Series 7 and 63 certifications. Read more...
P.S. Investing in dividend-paying stocks is one of the most
profitable ways to beat the market. For more on stable stocks that
will grow your money with ever-increasing dividends, see Carla
Pasternak's latest course, The 5 Rules Every Income Investor Has to
Disclosure: Neither Tom Hutchinson nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.