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Inside the Highest-Yielding Country in the World
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Published:
September 1, 2008
New
Zealand offers the highest average yield -- 7.4% -- of all the
world's stock markets. The
nation is able to offer such stellar yields for a few reasons:
It's partly because the country's tax laws create incentives for
higher dividend payouts; partly because New Zealand's publicly
traded companies want to attract foreign investors; and partly
because of a quirk in New Zealand law.
New Zealand withholds 15% of dividend income paid to most
non-resident shareholders
-- including those from the U.S. But many companies boost their
payout to foreign investors to make up for the withholding --
and the New Zealand government actually subsidizes them for
doing so.
Again, attracting foreign investors is a priority for this
small, geographically remote country. Meanwhile, U.S. investors
can still retrieve the 15% withheld by requesting a foreign tax
credit. The end result is a truly superior dividend yield for
Americans investing in New Zealand's highest-yielding stocks.
Until recently, those robust distributions came on top of
impressive capital appreciation. The stock market increased more
than +200% in U.S. dollar terms for the five years ending
December 2007, as the island's economy benefited from rising
prices for its agricultural commodities and the general
prosperity of the Pacific Rim.
One of the leading suppliers of dairy products and lamb to the
world, New Zealand stands to benefit in the coming years from
the growing prosperity of China and other Asian countries.
Experts expect meat sales to Asia to rise significantly in the
coming years as the growing middle class in this region
increases demand for protein -- a consistent trend that
accompanies growing wealth in societies of all types.
In recent months, New Zealand's stock market has fallen on tough
times. As I predicted in our inaugural issue, rising interest
rates were likely to constrain economic growth in 2008, and
that's exactly what has happened. In fact, the Reserve Bank of
New Zealand raised rates too fast, forcing a cut of -0.25% on
July 24th in order to head off a recession. In addition to the
rising rates, the worldwide credit crisis also has spread to
banks in New Zealand and especially Australia, whose economy has
a huge impact on its smaller neighbor.
Because lower interest rates make international investors less
likely to buy a country's bonds, the rate cut hurt the New
Zealand dollar -- affectionately dubbed the "kiwi" -- versus the
U.S. dollar. After hitting a 23-year high in February, the kiwi has
fallen about -15%, from above US$0.82 to around US$0.70.
The good news is that the currency change means New Zealand
stocks are now -15% less expensive than they were in March for
U.S. investors, even without a change in the underlying share
price. Meanwhile, the economy retains long-term strengths, even
if it has slowed this year. And while the kiwi
potentially has more downside, I think it will resume its
long-term rise against the U.S. dollar within a few months. So
while I'd avoid the most economically sensitive New Zealand
stocks, this is a buying opportunity for high-quality companies
with high dividend yields -- like the one I profile below...
Important Note: In the remainder of this article,
High-Yield International editor Nick Lanyi profiles one
of his favorite New Zealand plays. As a farm-services company in
New Zealand, this business sees stable demand no matter the
broader economy -- and with a recent expansion into South
America, growth is no problem either. Best of all, these factors
allow the company to pay a mouth-watering dividend, and the
shares can be bought on an American exchange. In order
to view the remainder of this article, you'll need to subscribe
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additional premium content. Please visit one of the following
links to continue..
-- Nick Lanyi
Editor
High Yield International
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