When most investors think of investing internationally, I'm guessing that Europe, China, South America, or one of the emerging markets in Eastern Europe or Southeast Asia spring to mind. I doubt many think of Bermuda as an investment destination. That's too bad, because Bermuda has more to offer than sugary-white sand beaches and alluring turquoise water.
Bermuda offers investment opportunity, particularly for income investors. I say that because the High Yield Wealth portfolio features two exceptional Bermuda-domiciled income-generating recommendations. Bermuda's business environment contributes to their attractiveness, because Bermuda is a terrific business haven. It has no corporate or personal income tax, so less money flows to government and more can flow to investors. Bermuda also has no tax withholding, so U.S.-domiciled investors get all their dividend cash up front and don't have to claim a credit for a withholding at the end of the year.
The Bermuda dividend is also considered "qualified" by IRS standards, so it's subject to the 15% dividend tax rate of U.S. investors, not the higher personal income-tax rate. I added one Bermuda-based company -- an established technology firm with the potential to become a dividend-growth leader -- just this month in the June issue.
I recommended the other this past December, and it yields above 6% on my initial cost basis. What's more, this Bermuda-domiciled company has raised its payout for 13 consecutive quarters. I'm referring to Textainer Group Holdings (TGH), the world's largest owner, lessor, and seller of shipping containers. Textainer owns a fleet of 1.7 million containers (typically standardized at 20 or 40 feet in length), with a customer base of approximately 400 lessees.
Textainer also happens to be a great example of the advantages of dividend-growth investing. Indeed, since I first recommended Textainer, it has returned -- through dividend increases and price appreciation -- nearly 30% to the High Yield Wealth portfolio in six months. I'm not surprised by Textainer's exceptional investment performance, because its market -- international trade -- is a growth market.
The World Trade Organization expects global trade to grow by 4.5% in 2013. Citigroup economists project that the sum of imports and exports will grow by an average annual rate of 5.25% during the next four decades, swelling the dollar value of trade to $287 trillion by 2050 from $37 trillion in 2010. More important to Textainer, sea is by far the preferred transportation option. Roughly, 90% of traded goods are transported via sea routes.
Within the shipping sector, containerships carry about 64% of the value of goods shipped, according to World Shipping Council data. In one year, a single large containership can carry more than 200,000 container loads of cargo. In fact, many containerships can transport up to 8,000 containers of finished goods and products on a single voyage.
Textainer has grown with the expansion of international trade. In fact, Textainer has grown at an even faster pace. Revenue during the past 10 years has more than tripled to $487 million in 2012 from $150 million in 2003. Over the same period, EPS has risen fourfold to $3.96 from $0.93. The dividend, at $1.84 annually, is easily covered by earnings. I expect the dividend will continue to grow with EPS, which is expected to grow to $4.00 this year and $4.32 in 2014. Therefore, I expect to realize more income and higher yield on my cost-basis recommendation. I also expect that earnings and dividend growth to lead to a higher share price, which will continue to drive the total return number higher.
Disclosure: None.
