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Looking for yield? Look to Israel -- a prosperous, democratic country, known for its innovative, high-tech companies.

When the Great Recession hit worldwide in 2008, Israel largely escaped. Why? Israeli banks had avoided toxic debt and the Israeli government wisely stimulated with tax cuts -- not money printing.

Yes, I know what you are thinking. Why invest in the most reviled (at least by its neighbors) country in the Middle East? Good question . . . stay with me . . . we will revisit the issue.

Consider these 5 high yielders:

Cellcom Israel Ltd. (NYSE:CEL)

Israel's largest cellular communication company has a market cap of $3.1 billion and a trailing P/E of 8.4. The company has a generous 11% dividend.

Growth in cell phone revenue in Israel comes, not from market penetration (there are already 1.27 cell phones for each inhabitant), but from additional value added services such as internet, data, text messaging, conference calling, downloadable content, etc.

Cellcom has a 5 year expected PEG of 0 .8 and a forward P/E of only 2.64. According to the these metrics, Cellcom is profitable, high dividend, and high growth.

Partner Communications (NASDAQ:PTNR)

Partner is a competitor to Cellcom (Partner has 32% of market share vs Cellcom's 34%). The company has a market cap of $2.87 billion and a trailing P/E of 8.3. Dividend yield is 8.9%.

Partner, along with its competitors, markets smartphones, including the iPhone, to the Israeli market. It bears repeating: mobile technology is growing by leaps and bounds as additional capabilities are bundled into mobile phones. Cell phones are much more than just voice communication now.

MIND C.T.I., Ltd (NASDAQ:MNDO)

This micro-cap ($60 million) may be worth looking at. It has a solid balance sheet (no debt and cash 1/3 of market cap). Mind has a 9.3% dividend. The company develops and markets billing and customer care software to the the rapidly growing communications industry.

MIND has a world-wide customer base (most customers are in Europe and the Western Hemisphere). Any micro-cap with worldwide markets has practically unlimited growth potential. Pelephone (Israel's number 3 mobile phone company) just recently selected MIND's billing software (see here). As this stock is thinly traded, small investors can get in more easily than large ones.

Ituran Location and Control (NASDAQ:ITRN)

Car stolen? Ituran's devices and software allow the police to track, locate, and recover it. Unlike U.S. based Lojack (NASDAQ:LOJN), which uses local RF towers, ITRN uses satellite based GPS technology. Ituran also provides personal tracking and auto related services such as destination directions to gas stations, hospitals, restaurants, etc. The company has a market cap of $364 million and a 6.4% annual dividend. Trailing P/E is around 16.

Ituran's quarterly revenue growth (yoy) is 21%. Major markets are in Israel and South America (Brazil and Argentina).

There is some speculation Ituran may move into the U.S. market, perhaps buying out weaker Lojack. Lojack, at this point, has neither earnings nor dividends.

Alon Holdings - Blue Square Israel Ltd. (NYSE:BSI)

Think if of this company as a kind of Israeli Wal-Mart. Blue Square is in groceries, petrol stations, convenience stores, and other retail outlets. Now they are looking to work with Partner (PTNR) in cell phones. Blue Square has been in business in Israel for 70 years!

The company has a trailing P/E of 39 and high debt. The 30% dividend piqued my interest. It seems that in October, 2010 they paid a controversial (partially debt funded) special dividend of $3.28 -- hence the 30% yield. Don't count on this repeating. The company has, however, paid one or two dividends a year for the last 10 years (except 2009). You can get Blue Square's dividend history here. The stock also is thinly traded.

Dividend Consistency

Dividends are often erratic in these companies. Investors used to regular quarterly distributions may find this unnerving. Yet most of the above are financially strong (I hesitate on Blue Square because of the debt.) and dividends will flow. Wouldn't it have been nice to own Blue Square Israel in the summer/fall of 2010? Cellcom and Partner seem to be the most reliable recent dividend payers.

Israel? You've Got to be Kidding!

Earlier we asked: "Why Israel"? Well, yes, why invest in a country which is regularly threatened by suicide bombers, Grad missiles, Quassam rockets, and mortar shells? Not good! Keep in mind though, Israel has many innovative, well established, and high growth companies. These companies have not only survived, but prospered through decades of war and turbulence. Many have worldwide markets. Another plus (if you could call it that) is that Israeli conflicts often provide great entry points into its stocks.

Finally, consider hedging Israeli stocks with dividend paying oil stocks. Look at Total SA (NYSE:TOT) or ConocoPhillips (NYSE:COP). Or, if you want to stay well away from the Middle East, there is Argentina's YPF SA (NYSE:YPF) or Canadian equities such as PennWest Petroleum (NYSE:PWE). Middle East tensions invariably result in higher prices for oil and oil related equities.

If investing in Israel, keep your stake small, hedge, and do your due diligence.

Disclosure: I am long CEL, MNDO. Also long TOT and YPF in an IRA

Source: 5 High Yielding Israeli Stocks