Best International Dollar Hedge High Dividend Stocks
1. EXECUTIVE SUMMARY FOR THIS SERIES
HIGH YIELD STOCKS ARE A FORM OF CASH. THUS INFLATION EATS AWAY AT BOTH YIELD AND PRINCIPLE. AS GOVERNMENTS INFLATE THEIR MONEY SUPPLY TO EASE CREDIT, MOST OBSERVERS BELIEVE INFLATION IS INEVITABLE. IN THIS SERIES WE EXPLORE:
THE CURRENT STATE OF THE MARKET THE CASE FOR AND AGAINST THE DOLLAR’S DEMISE
RECOMMENDED CRITERIA FOR SELECTING HIGH DIVIDEND STOCKS THAT ALSO GIVE A HEDGE AGAINST THE U.S. DOLLAR’S LIKELY IMPENDING DEPRECIATION.
SPECIFIC STOCK MARKET HEDGES AND HIGH DIVIDEND STOCKS THAT ARE INFLATION RESISTANT MENTIONED BELOW INCLUDE:
GENERAL MARKET HEDGES
Veolia Environmental SA (VE), ENEL-SOCIETA PER AZI (ESOCF.PK or ENLAY.PK)
Canadian Oil/Gas Energy Income Trusts
Advantage Energy Income Fund (AAV, TSX: AVN.UN), Enerplus Resources Fund (ERF), Peyto Energy Trust (OTCPK:PEYUF, TSX: PEY.UN), Provident Energy Trust (PVX, TSX: PVE.UN), Vermillion Energy Trust (VETMF.PK, TSX: VET.UN )
Canadian Clean Energy Income Trusts
Energy Savings Income Fund (OTC:ESIUF, TSX: SIF.UN), Innergex Power Income Fund (OTC:INRGF, TSX: IEF.UN), Macquarie Power & Infrastructure (OTCPK:MCQPF, TSX: MPT.UN), Great Lakes Hydro Income Fund (OTC:GLHIF, TSX: GLH.UN)
Canadian Energy Infrastructure Income Funds
Canadian Utility Income Trusts
Atlantic Power Corporation (OTC:ATPWF, TSX:ATP.UN) and some very positive clarification from their CFO Mr. Patrick Welch, Bell Aliant Regional Comm. Fund (GM:BLIAF, TSX:BA.UN) Canadian Health Care Income Trust CML Healthcare Inc. Fund (OTC:CMHIF, TSX: CLC.UN) Canadian Real Estate Income Trusts
Canadian Misc Business Trusts
Yellow Pages Income Fund (YLWPF.PK, TSX: YLO.UN)
Energy Infrastructure Master Limited Partnerships (MLPs)
Buckeye Partners (BPL), El Paso Pipeline Partners (EPB), Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Kinder Morgan Energy Partners (KMP), Magellan Midstream Partners (MMP), Nustar Energy (NS), ONEOK Partners (OKS), Sunoco Logistics Partners (SXL), TEPPCO Partners (TPP),Tortoise Energy Infrastructure Partners(TYG) Coal MLPs
2. MARKET STATUS
No changes to report since Part II. Short term rally at some point, no reason to believe the overall downward trend has changed.
A. Ramifications for High Dividend Stock Investors
In sum, we’re still in in a near term trading range, with the overall trend continuing down. Continue to invest only with funds allocated for longer term investment. you don’t need for the next six to eighteen months at least. What you buy now may well go lower.
1. Consider a Partial Hedge with Selected Ultrashort ETFs
When that rally comes and begins to fade, take a third of your planned total positions in the below short ETFs. Beware not to chase them, since these can move very fast. Take second and third portions of your position only at the below strong support zones.
- UltraShort S & P 500 Proshares (SDS) – Buy under $75, Strong Buy under $65
- UltraShort Financials ProShares (SKF) -- Buy Under $141; Strong Buy below $125
- UltraShort QQQ ProShares (QID) – Buy Under $55, Strong Buy under $50
- UltraShort Real Estate ProShares (SRS) – Buy Under $58, Strong Buy under $48
- UltraShort Russell2000 ProShares (TWM) – Buy Under $75, Strong Buy under $65
2. Continue to Take Partial Positions at Our Recommended Strong Support Levels
Beyond the Ultrashort ETFs if you can earn reliable dividends from 8-12 percent or more while you wait for recovery, ongoing investment makes sense. You just need to find the best bargain priced quality high yield stocks, and collect your income while waiting for the market to improve and offer additional options.
That’s my focus at HighDividendStocksGuide.
As noted earlier in this series, with a confirmed downtrend and good evidence for a further 20% or more overall drop, refer to our below recommended buy levels, which are at strong support levels.
3. INTRODUCTION TO PART III
In Part II, we briefly covered the case for and against the USD, and criteria for selecting high dividend stocks that also provide a USD hedge.
The key concluding point of Part II:
In short, we’re seeking stocks of strong companies that mostly earn and distribute a high dividend in a non-USD currency and have a dominant position in a market for an essential product or service.
Here in Part III, we provide a superficial overview of the top international sectors and stocks, ETFs, Canadian Income Trusts that provide the best combination of high yield and dollar hedge.
The below list is not comprehensive, nor is it the result of a simple mechanical screening. Rather, these are the stocks which my preliminary or ongoing research has revealed thus far.
Suggestions are welcomed for additional combination high dividend and U.S. dollar hedge stocks, ETFs, Income Trusts, etc.
4. AN OVERVIEW OF STOCKS THAT HAVE ALL THREE CRITERIA
Perhaps the one distinct upside of a world-wide stock market collapse is that prices get so beaten down that the previously modest yields of many blue chip companies suddenly become high, as scared investors demand a higher risk premium.
For the best of these, their price declines are not due to deteriorating fundamentals, but mostly due to hedge and mutual funds dumping shares to meet redemption and/or other requirements.
Here are stocks I’ll be discussing in my next article as candidates for my list of Best Dollar Hedge High Yield Stocks
ALL AMOUNTS QUOTED ARE IN U.S. DOLLARS (USD) UNLESS OTHERWISE NOTED. ALL STOCK SYMBOLS ARE NEW YORK STOCK EXCHANGE UNLESS OTHERWISE NOTED (OTC = OVER THE COUNTER, TSX = TORONTO EXCHANGE). YIELDS ARE ANNUALIZED, BASED ON CURRENT PRICES AND DIVIDENDS.
Because one of our criteria is that the stock price and distribution must be pegged to a non-USD currency, no surprise that most of the best USD hedge high yield stocks based outside of the U.S.
The return of high oil and gas prices is a matter of when, not if. Some of the best income plays are in energy, and the stock prices and dividends of many have been beaten down along with oil and gas prices.
Big Integrated Oil: Yes, definite risk of further price and even dividend cuts while oil prices remain low. At the below recommended buy prices, most of that risk is priced in, and far outweighed by the rewards when energy prices resume their long term uptrends.
- BP, plc (BP): Buy below 40, Strong Buy Below 36. Yield over 9%.
- CNOOC Ltd. (CEO): Buy below 85, Strong Buy below 80. Yield over 6%.
- Eni SpA (E): Buy below 40, Strong Buy below 35. Yield over 11%.
Like their US counterparts, these foreign blue chips’ formerly modest dividends way up due to the overall market selloff. Fundamentals remain steady.
- (Brasil Telecom S.A. (BRP), Buy below 32.5, Strong Buy below 30. Yield 16%.
- Cellcom Israel Ltd. (CEL): Buy below 22, Strong Buy below 20. Yield 11%.
- France Telecom (FTE): Buy under 24, Strong Buy under 20. Yield over 13%.
- Telefonica, S.A (TEF): Buy under 52, Strong Buy under 48. Yield over 7%.
- Veolia Environmental SA (VE): Buy under 25, Strong Buy under 21. Yield over 9%.
- ENEL-SOCIETA PER AZI (OTCPK:ENLAY): Buy under 5.50, Strong Buy under 4.50.
Yes, many currently are down on this sector, but like energy it will return and meanwhile pay you well for the wait, even with risk of dividend cut.
- Nordic American Tanker (NAT): Buy under 27, Strong Buy under 22. Yield over 20% suggests investors are pricing in a dividend cut.
- Seaspan Corp.(SSW): Buy under 10, Strong Buy under 8. Yield over 20% suggests investors are pricing in a dividend cut.
Due to the abundance of stocks with solid fundamentals, low tax structures, and their CAD denominated prices and very high yields I give “my Canadians” their own category. In addition to great fundamentals and dividends, these stocks and their yields are in Canadian dollars. The CAD is a prime commodity based currency backed by one of the healthier banking systems. In addition to their share prices being down with the overall market, these carry an extra discount due to the CAD’s recent decline against the USD.
Note that prices quoted are in USD, and that many of these are thinly traded. Low average shares traded volume can make getting out fast costly because bid/ask spreads can be wide if there is a sudden volume spike. The benefit of this is that you can try to place lowball orders 10% or more below current prices and have a better chance of getting your price as the latest waves of fear and selling hit the market.
1. Energy Income Trusts
All will continue to suffer price and dividend declines along with energy prices, but will soar when they recover, even with the higher taxes from 2011 onward. These are priced so low, and their distributions are so high (many at the assumption of oil at far lower prices) that the risk is worth the reward. I’ll discuss these in greater detail later, but the short version is that their beaten down prices already include lower energy prices and they still pay high yields. Take only partial positions until energy prices appear to have stabilized, but be ready to load up on these as the market begins to show interest.
- Advantage Energy Income Fund (AAV, TSX: AVN.UN). Buy under 3, Strong Buy under 2.5. Yield over 20% prices in a dividend cut.
- Enerplus Resources Fund (ERF): Buy under 20, Strong Buy under 15. Yield over 12%. See comments in my prior article Top 10 Energy Stocks...
- Provident Energy Trust (PVX, TSX: PVE.UN): Buy under 3.5, Strong Buy under 2.5. Yield over 24% prices in a dividend cut.
- Vermillion Energy Trust (VETMF.PK, TSX: VET.UN ): Buy under 19.25, Strong Buy under 18.25. Yield over 12%. See comments in my prior article Top 10 Energy Stocks...
- Peyto Energy Trust (OTCPK:PEYUF, TSX: PEY.UN): Buy under 8, Strong Buy under 6. Yield over 20% prices in a dividend cut.
- Claymore/SWM Canadian Energy Income Fund (ENY): Buy under 10, Strong Buy under 8. Yield over 11%. For those that want to buy a basket that attempts to mimic this sector.
2. Clean Energy Income Trusts
These are essentially utilities with heavy focus outside of coal and oil.
- · Energy Savings Income Fund (OTC:ESIUF, TSX: SIF.UN):p Buy under 8.50, Strong Buy under 7.50. Yield about 15%.
- · Innergex Power Income Fund (OTC:INRGF, TSX: IEF.UN): Buy under 9, Strong Buy under 8. Yield about 14%.
- · Macquarie Power & Infrastructure (OTCPK:MCQPF, TSX: MPT.UN): Buy under 5, Strong Buy under 4. Yield over 25% prices in possible dividend cut.
- Great Lakes Hydro Income Fund (OTC:GLHIF, TSX: GLH.UN): Buy under 14, Strong Buy under 12. Yield over 10%.
3. Energy Infrastructure Income Trusts
- Altagas Income Trust (OTCPK:ATGFF, TSX: ALA.UN): Buy under12, Strong Buy under 10. Yield over 20% prices in a dividend cut.
- Pembina Pipeline Fund (OTC:PMBIF, TSX: PIF.UN): Buy under 13, Strong Buy under 12.50. Yield about 14%.
4. Utility Income Trusts:
Atlantic Power Corporation (OTC:ATPWF, TSX:ATP.UN): Buy under 7.50, Strong Buy under 6.50. They raised dividend 8% over the past year. Yield of about 20% prices in dividend cut, but I don’t see one coming.
I discussed ATPWF recently in my article Top 10 Energy Stocks.... , and mentioned that I had some questions regarding the payout ratio and safety of the distribution.
I recently spoke with Mr. Patrick Welch, the CFO, to clear up these questions. Here are the key points.
- First, due to semi-annual debt payments, quarterly payout ratios can vary from around 50% to 160%, averaging out around 70%. That’s fine for a firm with steady, predictable revenues like this one.
- Second, distributions are pegged in CAD, thus providing a USD hedge. Even though the company earns in USD, it has currency hedges to protect its CAD distributions through 2013.
- Third, while the firm has the right to redeem the bond portion of these Income Participation Securities, it has no current plans to do so because refinancing at current rates would be more expensive. I’ll discuss ramifications of a possible redemption in a future article.
In a market full of bargains, this one appears to be among the best.
Bell Aliant Regional Comm. Income Fund (GM:BLIAF):Buy below 20, Strong Buy below 18. Yield 15%.
CML Healthcare Inc. Fund (OTC:CMHIF, TSX: CLC.UN): Buy under 11, Strong Buy under 10. Yield over 10%.
6. Real Estate Income Trusts
- Canadian Apartment Properties REIT (OTC:CDPYF, TSX: CAR.UN): Buy under 11, Strong Buy under 10. Yield over 10%.
- Northern Property REIT (OTC:NPRUF, TSX: NPR.UN): Buy under 13, Strong Buy Under 12.Yield over 12%.
- RIOCAN REIT: (OTCPK:RIOCF, TSX: REI.UN): Buy under 12, Strong Buy under 10. Yield over 14%.
7. Business Trusts
Yellow Pages Income Fund (YLWPF.PK, TSX: YLO.UN): Buy under 6, Strong Buy under 4. Yield over 27% prices in dividend cut though fundamentals have held thus far.
Conclusion, Disclosure & More Info
In Part I we looked at the current market, and the case against the US Dollar.
In Part II we reviewed the current market, the case for the USD, and the key criteria that make a high dividend stock a USD hedge.
In Part III we briefly described the best sectors and listed specific recommendations that fit these criteria. Thus we saw a listing of the best high dividend stocks outside of the U.S.
In Part IV we’ll look at the best high yield dollar hedges among the U.S. stocks.
The coming articles will examine individual categories and stocks in greater detail.
Disclosure: I have positions in most of the above mentioned investments.