The S&P 500 recently notched its highest close in more than
three and a half years. Hitting new peaks in the
that began in March 2009, the U.S.
has gained 9.0% so far this year.
That's impressive... but not compared with what's happening
Investor appetite for global companies in fast-growing overseas
markets such as Brazil and China are pushing
to new 52-week highs. In fact, Morgan Stanley's benchmark MSCI All
, which excludes the United States, has surpassed the S&P 500,
with year-to-date returns of 10.7%.
But how can stateside investors take advantage of these foreign
It's easy with American depository receipts (ADRs). These unique
securities allow non-U.S. companies that trade on their home
country exchange to trade at the same time on a U.S. exchange in
U.S. dollars. ADRs aren't actually shares, but they represent
shares, just as a dollar bill used to represent 1.5 grams of gold.
More than 2,400 ADRs trade and pay dividends in U.S. dollars on
More than 85% of ADRs trade over-the-counter in the United States.
But for today's purposes, I'm only going to cover roughly 365 ADRs
that allow you to tap into global giants that trade on the
These stocks are starting to attract investor attention. In fact,
the BNY Mellon
Index of depository receipts that trade on the NYSE or Nasdaq is
slightly ahead of the S&P 500.
Despite bulling ahead, these securities stilloffer income investors
of 4%, almost double the S&P 500's 2%. And while the S&P
500 is starting to look pricey with a trailing price-to-earnings
(P/E) ratio of about 14, bargain hunters will find lots of value in
high level American depository receipts, which still enjoy an
average P/E of just 12.6.
The best high-yield ADRs on themarket
I decided to use StreetAuthority's screening tools to find the most
compelling high-yield foreign companies that trade actively on a
major U.S. exchange. The results give me 365 companies. I then
eliminated any ADRs which offered a yield of less than 5%, based on
their payouts over the past 12 months.
That left 56 ADRs. I then screened for
growth track record over the long-term and near-term. Less than
half, or 21 of the ADRs, grew dividends by an average of at least
5% annually over the past three years and the past year.
In addition to growing payouts, I wanted to ensure the share price
helped generate positive total returns for investors. I, therefore,
screened these 21 ADRs for a positive
200-day moving average
. My goal was to select ADRs with a stable or positive long-term
price trend. Only 13, a little more than half, passed muster.
I raked these 13 prospects over the coals one more time. U.S.
investors have grown used to a diet of regular and frequent
dividend payments. But foreign stocks generally don't pay dividends
as frequently as their U.S. brethren. Some, such as Brazilian
, make irregular payments depending on
. Many, such as Taiwan's
United Microelectronics (
or Brazilian steelmaker
, pay just once a year.
So I did a final screen for dividend frequency and kept only
companies that dole out payments at least twice a year. That left
nine worthy candidates.
Risks to Consider:
Even though ADRs trade and pay dividends in U.S. dollars, they
are still exposed to
volatility. That's because trading prices and dividends are pegged
to local currency. If local currency strengthens against the U.S.
dollar, then the ADR price and dividend will be worth more to U.S.
investors, but the reverse is also true.
Also, some of these ADR dividends are subject to withholding
taxes of around 15%, which are deducted before the dividend enters
your account (you can often get this refunded by the U.S.
government). That said, Brazil and the U.K. don't withhold taxes
for U.S. residents, so no foreign taxes are withheld on dividends
from Cemig, GlaxoSmithKline, or Vodafone.
Finally, this screen focuses on only a few key variables. It
hasn't touched on
, debt and other fundamentals that can drive share price
performance. So, please see the list as a starting point for
Action to Take -->
Cemig's common (NYSE: CIG-C)
ADRs stand out from this list for their combination of high yield
and strong dividend growth. The fact that Brazil charges no
withholding tax, allowing investors to keep the full amount of
declared dividends, is an added bonus.
I recently profile this company in greater detail in my
newsletter because it's my personal favorite on this list, but any
of these companies are suitable candidates for further
-- Carla Pasternak
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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