Michael Johnston: With benchmark interest rates hovering at or near zero in many developed markets, investors of all types have been seeking out high-yielding asset classes to deliver current returns to their portfolios. Many have gravitated towards the 50+ dividend-focused ETFs on the market as tools for this challenging objective; that segment of the universe features many products with impressive yields. Other popular options include junk bonds and emerging market debt, two bond sub-sectors that have the potential to offer up attractive payouts as well.
Another option lies in corners of the global stock market that have been beaten down over the past year or so, as many asset classes that have seen big price declines could offer up some huge yields if they are able to maintain their payouts going forward. Below, we profile three such opportunities [ETFdb Pro members can access the Monthly Dividend ETFdb Portfolio ; sign up for a free 7-day trial to get full access]:
Spain is at the heart of the eurozone’s ongoing fiscal meltdown, home of an unemployment rate in excess of 20% and one of the leading candidates to ultimately force the end of the common currency bloc (Greece has to still be considered the heavy favorite). So it should be no surprise that investors have shied away from Spanish stocks — (NYSEARCA:EWP) is one of the worst performers this year in the Europe Equities ETFdb Category.
That investor anxiety could potentially translate into an attractive yield opportunity; EWP has a 12-month yield (more on this metric below) of about 10.6%, thanks in large part to the decline in share price.
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2. Nuclear Power
Nuclear power suffered a high profile setback when a reactor in Japan melted down, and the industry has struggled to regain public trust ever since. Despite some evidence that nuclear power will be a viable long-term option in many parts of the world, investors have been hesitant to pile back in to companies that enrich uranium and engage in other aspects of nuclear power production.
The Market Vectors Uranium + Nuclear Energy ETF (NYSEARCA:NLR) paid out dividends of about $1.93 per share in December. With the current price of about $15, that translates into a 12-month yield of about 13%.
3. Solar Power
Solar power, once considered by many to be a “can’t miss” investment opportunity, has seen the screen fade to black over the past several years. As cash-strapped governments throughout Europe have slashed the once generous subsidies to this industry, cash flows have dried up. High profile debacles and massive budget shortfalls in the United States haven’t helped either, and solar power has perhaps gone from being an inevitable piece of the puzzle to an afterthought.
Solar power ETFs have struggled mightily, shedding about 80% of their value over the past three years. That, however, creates some hefty backward-looking yields. TAN paid out a split adjusted dividend of $2.11 per share in December, which equates to nearly 13% of its current share price. Market Vectors’ (NYSEARCA:KWT) paid out about $3.50 per share last year (again, adjusted for a subsequent split), which represents about 9.6% of its recent share price.
Note of Caution
The 12-month yield calculations performed above feature some inherent biases and potential flaws. Specifically, they consider backward-looking distribution information in conjunction with current pricing data, thereby assuming that the payouts over the most recent 12-month period will continue going forward. In the case of many asset classes that have struggled recently, that might not always be realistic. For example, many Spanish companies have seen earnings forecasts deteriorate, and may not be able to match their historical level of payouts. Similarly, it would be quite an accomplishment if solar power firms are able to match their 2011 distributions this year.
It should be no surprise that such hefty yield opportunities come with considerable risk; buyer beware!
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