News Analysis date published New: 
Tuesday, September 4, 2012 - 10:30
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Tuesday, September 4, 2012 - 11:21
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Tuesday, September 4, 2012 - 10:30

These 7 High-Yield Stocks Succeeded Where 247 Others Didn't

Tuesday, September 4, 2012 - 10:30am

In a world where the S&P 500 is paying a paltry 2.0% dividend yield, savings accounts earn next to nothing and treasury yields are barely beating inflation, millions of investors are turning to high-yield stocks to supplement their income.

For most investors, that means buying higher-yielding U.S. equities.

I've seen real estate investment trusts (REITs) like Annaly Capital Management (NYSE: NLY) and master limited partnerships (MLPs) like Kinder Morgan (NYSE: KMP) become wildly popular lately.

But while non-traditional U.S. investments like REITs and MLPs are a good start, if you really want to find higher-yielding stocks, then you need to look somewhere else entirely. Specifically, you should start looking overseas.

As the Chief-Strategist behind High-Yield International, my latest research shows that over 90% of the world's highest-yield opportunities are located in foreign markets.

That includes companies like global shipping giant Navios Maritime Partners (NYSE: NMM), which yields 12.4%. And Bermuda-based outfits like SeaDrill (NYSE: SDRL), which pays an impressive 8%.

But there's a catch. While there's no question that foreign markets harbor some of the best income stocks in the world -- if you're simply searching for stocks that offer fat dividend yields, then you're taking on far more risk than you might imagine.

Consider this...

In 2011 -- a year that featured a relatively stable global economy and solid corporate earnings -- just 101 domestic companies cut their dividend payments. Looking back at the data for the last decade, that's a pretty typical number.

But in the depths of the last recession, things got much, much worse. Investors who depended on dividend payments to generate stable, recurring income got crushed.

In 2008, an incredible 606 companies were forced to cut their dividend payouts. And in 2009, more than 800 companies slashed their dividends.

The lesson here is simple -- if you want to steadily compound your money over time, then you can't blindly invest in a basket of high-yielding stocks.

Instead, you need to pay close attention to each company's business model, financial stability and future prospects. In doing so, you need to make sure that you only invest in companies that are likely to maintain -- and ideally increase -- their dividends in the coming years.

A good place to start is to search for companies that have a long, consistent track record of raising their dividends.

With that in mind, I recently ran a screen on my company's Bloomberg terminal looking for stocks yielding at least 6% that have also delivered average annual dividend growth of at least 5% for the last decade. And since my focus is on international stocks, I only looked at foreign companies trading as ADRs on U.S. exchanges.

Here's what I found...

Out of the 247 ADRs that pay dividend yields greater than 6%, only seven of them were able to steadily raise their dividends during the last decade.

That's a rare feat. After all, it's easy for a company to raise its dividend in a strong economic environment, but only the most consistent companies are able to boost their payouts through economic downturns like the one we saw a few years ago.

Although all seven of these consistent dividend growers are worth exploring further, National Grid (OTC: NGG) looks to be the most promising.

National Grid is a diversified utility that provides electricity to Great Britain and parts of the northeastern United States.

Just as in the United States and most other developed economies, utilities like NGG are considered natural monopolies.

That monopoly status has helped the company raise its dividend year in and year out for more than a decade. In fact, since 1996 NGG has increased its dividend every year but one.

Looking ahead to the remainder of 2012 and into 2013, National Grid expects to boost its dividend yet again. And given the company's history, I'm confident it will.

Action to Take --> Stocks like NGG are exactly what I look for in my premium newsletter, High-Yield International. The company provides a basic necessity that people can't live without, and the firm's steady monopoly business should continue to support its dividend growth in both good times and bad.

If this low interest rate environment has you looking for higher yields, then I suggest looking for international stocks with a history of boosting their payouts. After all, any company can raise its dividend in a bull market... but only a select group of companies can raise their dividends through both good times and bad.

[Note: For more information about international dividend stocks, I invite you to read my latest presentation, where I've included names and tickers symbols of many other high-yield international plays. Visit this link to learn about these stocks 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.