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In 1995, NASDAQ was trading around 1000. On 3/10/2000, it hit a peak of 5048. Such euphoria had not been seen since the railroad boom of the 1840s or the automobile boom of the 1920s. Now it is China’s turn.

Last quarter China grew at a brisk 8.9% rate thanks to the government’s aggressive stimulus. The following are 14 Chinese stocks trade in the U.S. exchanges and have dividends over 2%:

14 Chinese Dividend Stocks

Name (Symbol)
Sector
Mkt Cap
Yield
P/E
Forward P/E
CHINA MOBILE (NYSE:CHL)
Telecom
192.55B
3.5%
12
n/a
CHINA PETRO&CHEM (NYSE:SNP)
Energy
76.60B
2.3%
10
8
CNOOC LTD ADS (NYSE:CEO)
Energy
72.39B
2.8%
17
10
GUANGSHEN RAIL (NYSE:GSH)
Railroad
3.07B
2.2%
18
n/a
PETROCHINA CO ADS (NYSE:PTR)
Energy
237.01B
2.5%
16
11
YAZHOU COAL MNG (NYSE:YZC)
Energy
9.01B
2.9%
13
n/a
China Medical Tech (CMED)
HealthCare
480.32M
3.6%
n/a
9
CHINA NEPSTAR ADS (NYSE:NPD)
HealthCare
772.72M
4.7%
39
34
CHINA TELECOM CP (NYSE:CHA)
Telecom
37.05B
2.1%
n/a
20
GIANT INTERACTIV (NYSE:GA)
Online Game
1.62B
2.5%
13
12
GUSHAN ENV EGY ADS (NYSE:GU)
Basic Mat
117.73M
9.4%
n/a
140
HUANENG POWER (NYSE:HNP)
Utilities
7.93B
2.1%
n/a
11
NOAH EDUCATION (NYSE:NED)
Education
233.17M
9.7%
15
n/a
WSP HOLDINGS LTD (NYSE:WH)
Basic Mat
411.58M
7.3%
5
n/a

I discussed the first 6 stocks (CHL, SNP, CEO, GSH, PTR and YZC) in my Oct 11 article. The 8 new stocks are mainly in healthcare, telecom and utilities sectors.

Health Care

New medical product development is both costly and labor-intensive and has a very low rate of successful commercialization. Companies that have to spend heavily on R&D have an inherent flaw in their competitive advantage that will always put their long-term economics at risk.

As a small cap, CMED’s operating results have fluctuated in the past and may continue to fluctuate significantly from time to time. I followed this stock since summer 2007, when it appeared on the top 100 list of Investor’s Business Daily. The following are comparisons between CMED, Johnson & Johnson (NYSE:JNJ) and Alcon (NYSE:ACL), the biggest medical instruments supplier by market cap:

Metrics
CMED
JNJ
ACL
Trailing P/E
n/a
13.4
22.1
Forward P/E
8.9
12.5
19.6
Operating Margin
17%
27%
37%
Debt/Operating Cash Flow
5.8
0.8
0.3
Yield
3.6%
3.2%
2.4%

As a result of acquisitions of the ECLIA, FISH and SPR technologies and BBE business, 59% of CMED’s total assets are intangible assets and goodwill. Earnings could be adversely affected if the company chooses to recognize impairment losses. Nonetheless, with plenty of cash on hand, CMED might be benefit from lucrative and profitable health care market in China.

NPD has 2700 drugstores providing pharmacy services. Its P/E is too high, though.

Telecom

Competition is intensifying for China's major telecom operators as the government granted 3 third-generation mobile licenses. CHL experienced a slowdown in profit growth recently, while rival CHA’s net profit fell due to higher marketing expenses costs to attract customers to its newly acquired cellular business.

Electric Utilities

China has increased its appetite for coal power. Barron’s projects that coal usage will increase 55% in the next 15 years. Variable coal spot prices, possible tariff adjustments along with rising power production nationwide make HNP’s future uncertainly. Followings are its dividend history and comparison with top 2 U.S. electric utilities: Southern Company (NYSE:SO) and Dominion Resources (NYSE:D):

Metrics
HNP
SO
D
Trailing P/E
n/a
15.7
12.9
Forward P/E
11.0
12.9
11.1
Operating Margin
-2%
22%
25%
Debt/Operating Cash Flow
7.6
6.3
4.3
Yield
3.6%
5.5%
4.8%

Hong Kong & Taiwan Dividend Stocks

Name (Symbol)
Sector
Mkt Cap
Yield
P/E
Forward P/E
CHUNGHWA TEL (NYSE:CHT)
Telecom
19.15B
11.0%
12
14
CHINA UNICOM (NYSE:CHU)
Wireless
32.87B
2.1%
23
26
City Telecom (CTEL)
Telecom
271.80M
5.6%
14
n/a
Himax Technologies (NASDAQ:HIMX)
Semi
224.76M
11.7%
9
9
TAIWAN SEMICOND (NYSE:TSM)
Semi
54.86B
3.5%
26
15

CHT is Taiwan's principal telecom service provider. Recently it announced a $1 million investment in mainland China. CHU’s new iPhone launch wasn't catching on with consumers as expected. TSM just reported big sequential gains in revenue and earnings. These latest results might be the beginning of a broader rally.

Followings are their annual dividend histories:

ETFs

Fund Name
P/E
Net Assets
Yield
MSCI Emerging Markets Index (NYSEARCA:EEM)
21.6
36.7B
1.5%
FTSE/Xinhua China 25 Fund (NYSEARCA:FXI)
24.7
9.7B
1.2%
MSCI Taiwan Index (NYSEARCA:EWT)
28.3
3.4B
5.1%
MSCI Hong Kong Index (NYSEARCA:EWH)
26.6
1.9B
3.4%

iShares.com’s data shows all those 4 ETFs trailing P/E are over 20. As you can see from the chart below, over the last 12 months they moved in the same direction:

Both EWT and EWH offer much higher dividends than FXI and EEM:

Conclusion

China's export markets are tapped out. Its domestic consumption hasn't started to rise significantly. Yet the Shanghai stock market is trading at 30 times trailing P/E and 20 times forward earnings. According to Lawrence McDonald, author of A Colossal Failure of Common Sense, you can’t model human behavior with computer. When a high rolling market goes wrong, history tells us it happens with lighting speed, as everyone stampedes for the door at the same time.

However, for long term income investors, the key is to find fundamental sound blue chips with low P/E and consistently paying solid dividend. In addition to ADRs, foreign investors can invest in Shanghai Stock Exchange’s B-shares or H-shares from the Hong Kong Exchange. They usually trade at a discount to their A-share listings.

Disclosure: I have long positions on CHL and EEM. Data are from SEC Filings, iShares, Google and Yahoo Finance as of November 13, 2009.

Source: 14 Promising Chinese Dividend Stocks