I have always been an advocate of including foreign stocks as an integral portion of the Protected Principal Retirement portfolio, and my enthusiasm for this asset class is not waning; however, I think we need to exercise a higher degree of caution going forward.
At the time of this writing our portfolio contains five foreign positions - all of which are in the energy/shipping sector. These include:
- Seadrill Ltd. (SDRL) - Norway
- North Atlantic Drilling Ltd. (NATDF.PK) - Norway
- Ship Finance International Ltd. (SFL) - Bermuda
- Freehold Royalties Ltd. (FRHLF.PK) - Canada
- Eagle Energy Trust (ENYTF.PK) - Canada
ENYTF is a recent addition to the portfolio. It was bought when the price broke below nine dollars. Earnings dropped a bit, but I was assured (for whatever that means) by their Investor Relations Department that this would in no way affect the monthly dividend payment. We shall see.
One positive thread that is common to SDRL, NATDF and SFL is the influence exerted by John Fredriksen, energy tycoon.
With all that is going on in the world, the potential for global recession, and the imminent European collapse (ongoing seemingly forever), I believe that we must exercise caution in selecting candidates for inclusion in the Protected Principal Retirement portfolio.
I maintain a listing of foreign stocks from a number of nations that I consider to be in stable condition, where the economy is either expanding, or has the prospect for expansion. These include, among others: Norway, Denmark, Sweden, Switzerland, Australia, New Zealand, Brazil and Singapore. When attempting to identify portfolio candidates I tend to gravitate towards utilities and energy - only because I feel more comfortable with these asset classes.
At present, I have five potential portfolio additions that I closely monitor:
- AES Tiete (AESAY.PK) - Brazil
- Cemig (CIG) - Brazil
- Fred Olsen Energy ASA (FOEAY.PK) - Norway
- PHX Energy Services (PHXHF.PK) - Canada
- EDP Energias de Portugal S.A. (EDPFY.PK) - Portugal
Portugal?? Well EDP is headquartered in Portugal, but their operations are global, including the U.S., Brazil, and several European countries.
Here is a brief summary on each of the candidates:
A few years back I owned (AESAY) and did quite well as far as total return goes. AES Tiete s one of the largest generators of electricity (hydropower) in Brazil. As any of you who follow AES Tiete know, the Brazilian government recently cut electric rates across the board by approximately 28 percent for business and 16 percent for residential service. This caused the stock to plummet from the high $11's to the mid $8's. It has since recovered to the mid $9 range.
The third quarter 2012 report indicated increased power generation of over 10 percent, a revenue increase of 4.7 percent, EBITDA increase of 4.4 percent and they declared a dividend of $.31. Over the past twelve months AES Tiete has paid $1.31 in dividends, for a yield on today's stock price of almost 14 percent.
Cemig is another Brazilian utility generating electricity via hydropower, thermopower, and wind farms. For the third quarter reporting period increased revenues by 19 percent, and earnings increased by almost 43 percent.
CIG paid a dividend of $.80 in April 2012 and effected a 5:4 stock split in May of this year.
Looking ahead, analysts see revenues increasing in 2013, and have a price target of $22 a share. The forward dividend forecast is for $1.19, which would be a 10 percent yield at today's price.
Fred Olsen Energy
Fred Olsen Energy (FOEAY) provides exploration and production services to offshore energy companies in the U.K., South America, and Africa. They also operate deepwater and semi-submersible drilling rigs, of which two thirds are contracted through 2013.
The company presently has a $5 billion operational backlog. For the latest reporting quarter (FOEAY) revenues increased 13 percent while earning declined 11 percent primarily due to increased operational expenditures.
Over the past twelve months they paid just over $.67 in dividends for an approximate yield of just under eight percent.
PHX Energy Services
PHX Energy Services provides horizontal and directional drilling services to a wide range of clients in North America, South America and Asia. The company changed its name from Phoenix Technology Income Fund in late 2010.
In the third quarter 2012, revenues increased to a record level of $84.1 million, and they earned $.28 vs. $.31 year over year. This exceeded analysts estimates for $.18.
For the quarter (PHXHF) paid out $.18 in dividends ($.06 per month), for a yield of 7.4 percent based upon today's price of $9.76.
EDPFY is a major producer of electricity, operating hydro, thermal and coal power plants. In addition they also operate wind and natural gas plants, and biomass facilities.
While headquartered in Lisbon, they operate power facilities in Western and Eastern Europe, the U.S., and Brazil.
For the quarter ending in September 2012 revenues increased over seven percent awhile earnings declined by one percent.
In May 2012 they paid a dividend in the amount of $2.36 for a yield of 9.37 percent. The dividend for 2013 is forecast to be $2.37.
The analysts covering the stock have a target price of $33.
Of the five stocks covered, I am most interested in (AESAY), and (FOEAY). At the present time I am satisfied in watching each stock from a distance and being very cautious about initiating positions.
Must say that even though these stocks have currently caught my interest, my first choice would be to add to (SDRL) at lower levels.
I would be very interested in hearing what those of you who read this article are watching in the way of international stocks.