Currently, about half of my stock portfolio is comprised of dividend payers in what I consider safe and growing industries. The other half is deep value growth plays, such as profitable China smallcaps trading at under half their book value. The gambler in me is very fond of the latter, and in no way has my confidence declined in any of my holdings. I do, however, have a family history of high blood pressure, not to mention a strong appreciation for sleeping at night. Either way, 6 months from now I intend for some combination of the companies below to make up 85%+ of my holdings.
The only criteria for my list was at least one annual dividend. Beyond that, generally equally weighted are percentage yield, valuation, financial strength and future growth prospects. My opinions on future growth eliminate most manufacturing, retail, banking and real estate stocks from consideration.
10. Indonesia Telecom (TLK): An ETF may be a better way to play this agriculturally wealthy and rapidly growing nation, but this telecom provider operates more profitably than most international counterparts.
9. Guangshen Railway Co (GSH): Railroads are a major target of China's stimulus package as it transforms itself into a more self-sufficient consumer. Guangshen grew revenues and income over 10% year-over-year in Q1 09 and trades at book value.
8. Consolidated Water Co (CWCO): This is a current holding of mine and I don't expect that to change in the next decade. CWCO is a Bermuda-based leader in desalination and trades at a huge discount to less profitable American competitor ERII, which does not pay a dividend. Our need for desalination is being realized and will never stop growing.
7. Turkcell Iletisim Hizmetleri (TKC): This Turkish telecom provider won't pay its next dividend for a year, but operations have held up well during the economic downturn. This is an interesting currency hedge with a yield over 6% and valuation not far up from 4-year lows.
6. Gold Fields Ltd. (GFI): Inflationary worries have the world's most gold-rich country garnering more attention from investors than ever before. This profitable miner pays a modest quarterly dividend and trades at a book value discount of over 50% to Anglogold (AU) or Randgold (GOLD).
5. China Mobile (CHL): China's telecom giant boasts a PEG ratio of 0.42 and hasn't recovered in price nearly as much as the country's other industry leaders. Throw in a 4% yield and nationally subsidized infrastructure growth and this stock looks very ripe.
4. Veolia Environment (VE): This highly leveraged, highly diversified world leader in wastewater management and environmental services trades at just over book value, 70% off 52-week highs. Annual dividend yield is 5.5%.
3. CPFL Energia (CPL): This Brazilian electric utility recently reported first quarter net income growth of 6.5% and has a record of distributing profits as dividends. Over $11/share has been paid to shareholders over the last 3 years.
2. Sociedad Minera y Quimica de Chile (SQM): Almost 200% up from October lows this is still a screaming buy. SQM mines the world's most abundantly accessible lithium and Chile boasts South America's most concentrated gold deposits. Earnings grew 179% in 2008 and this company operates at nowhere near capacity.
1. Companhia de Saneamento Basico do Estado de Sao Paulo (SBS): Sao Paulo's leading water utility company trades at 64% of book value. Dividends are irregular, but have been paid no less than semi-annually for the last 4 years. Shareholders of record on May 29 will receive a recently announced $0.47/share payment.
In case it's not already clear, I believe that water utility companies are terribly undervalued. Water is the most important resource for every person in every country. There are dozens of profitable water utilities that operate regionally in the US and I consider most of them great investments. Brazilians are simply greater consumers than us and SBS is both relatively and historically much cheaper than domestic options in the sector. Additionally, US water companies face greater competition and regulation, inhibiting expansion to other regions, nor are they as diversified as VE.
Disclosure: Long VE, SBS, SQM, CPL, GFI, CWCO.