News Analysis date published New: 
Wednesday, September 21, 2011 - 13:00
New Date created: 
Wednesday, September 21, 2011 - 13:00
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Wednesday, September 21, 2011 - 13:00

Forget Treasuries -- Buy These 12% Yields Instead

Wednesday, September 21, 2011 - 1:00pm

Let's be honest. When you hear about a stock that yields 12% or more, your first thought should be that the company is probably a basket case that can't even turn a profit. If it's offering a yield that sounds too good to be true, then it probably is.

And you'd be right most of the time. Usually, yields are this high because a company's share price is falling -- signaling underlying problems in its business. A lower share price gives a higher dividend yield. This means profitable companies paying yields this high should be rare.

In fact, my staff and I recently ran the numbers. When we looked only at the companies that turned a profit in the last year, we found just 18 U.S. common stocks paying yields of more than 12%. Here, you can see them for yourself:

But did you know there are actually hundreds of 12%-plus yields out there from profitable companies? The difference is that many investors just don't know where to find them.

This is because the majority of the world's highest yields aren't being paid by U.S. companies. My recent search found 412 additional stocks out there yielding 12% or more... all coming from international-based companies.

This means many income investors are essentially missing out on 96% of the highest yields before they even get started.

That's right, if you want high yields, you have to look at international companies.

I've researched this topic for years. And the fact is, foreign companies are simply paying higher yields across the board.

Take a look at the table to the right.

You can see the difference between what we get from U.S. companies and what's available from international companies. Keep in mind that I only looked at the common stocks of companies that were profitable over the past year.

As Judy Sarayan, a fund manager at mega-investment firm Eaton Vance explained, "There's a much stronger dividend culture abroad... individual investors play a larger role in those markets, and they have always demanded more dividends."

On a macro scale, the difference is striking. While the average yield for all stocks in the S&P 500 is just 2.0%, Germany's average yield is 3.6%... Brazil's average yield is 4.1%... the United Kingdom yields 3.4%... Australia yields 4.5%... New Zealand pays 4.4%.

But where you really start to see a dramatic difference is when you look at some individual examples of higher yields abroad.

Take banks, for instance. Here at home, Bank of America (NYSE: BAC) used to pay investors $2.56 per share before the financial crisis. That represented a yield of more than 6.0%.

Of course, we all know what happened next. Today, BAC pays a laughable $0.01 (yes, one penny) each quarter.

But it's a completely different story outside the United States.

Santiago, Chile-based CorpBanca SA (NYSE: BCA) is a perfect example.

Chile's largest bank, CorpBanca offers commercial and retail banking through more than 100 offices. The bank also offers mutual fund management, insurance and securities brokerages through a network of subsidiaries. Not only have the shares soared during the past five years, but dividends now total $1.66 per share each year. This gives the stock a yield of more than 8.0% at recent prices, and you can buy the stock on the New York Stock Exchange.

It's the same thing for utilities. They are some of the best places to search for yields in the United States. North Carolina's Duke Energy (NYSE: DUK) pays a yield of about 5.0%. But even that is topped by international utility stocks such as Germany's E.ON AG (OTC: EONGY).

E.ON AG is the world's largest energy provider. It serves more than 26 million customers and employs more than 75,000 people. Its shares pay investors $2.16 a year, for a yield of above 10.0%... this is about twice as much income as the average utility here in the United States.
Still, most U.S. investors are simply unaware that they're missing out on high yields such as these.

I want to make something clear, though. I don't think you should drop everything and put every dollar you have into international high-yielders. Truth is, the size and scope of the U.S. market makes it a great place to search for income investments.

Action to Take --> But limiting yourself to only U.S. stocks is like going to a restaurant and limiting your options to just one side of the menu. Sure you can find something you like... but wouldn't you rather see all the options?

Now, not every one of the 412 is available stateside, but don't worry, you can buy many of these without even leaving the U.S. markets.

I have more details -- including several names and ticker symbols -- in a presentation I recently put together. Visit this link to watch now.

Paul Tracy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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