If you are only looking for one or two names to add to a portfolio, rather than create a whole diversified portfolio of income names, the first ones you should look at are the ones that are Zacks #1 Ranks (Strong Buy) or Zacks #2 Ranks (Buy). Since dividend yields do tend to be somewhat mean-reverting over time, I would also tend to be more interested in the firms where the current dividend yield is more than the five-year average dividend yield.
What the screen reveals is that is it possible to have a well-diversified portfolio of firms with high and rising dividends, but that you might have to look abroad to find some of your firms. I happen to be bearish on the dollar (bullish on most other currencies), so the fact that a company is based abroad and thus probably makes most of its money overseas is a feature, not a bug. If the Dollar weakens, then those Euros or Yen they are earning will be worth more dollars.
A Closer Look at Screening Results
Let's take a little bit of a closer look at the number #1 and #2-ranked firms on the list. It just so happens that three of the four are in the same industry, so you will not get a diversified portfolio by buying all of them -- at least not diversified by industry -- but very well diversified geographically.
BBVA Banco Frances (NYSE: BFR) is one of the largest banks in Argentina, with 271 branch offices and $6.9 billion in assets. It is highly profitable, sporting a trailing return on assets of 4.17% and a trailing return on equity of 34.8%. It is also very modestly valued with a P/E based on expected 2012 earnings of under 8x.
The current dividend yield is more than twice its five-year average yield. It holds the coveted Zacks #1 Rank, which means it is a good bet for a short-term pop in addition to the long-term income and income growth story. The downside is that it is based in Argentina, which does not exactly have the best history of economic or political stability over the last century or so.
Telefonica (NYSE: TEF) is based in Spain, but is a major telecommunications provider throughout Europe and Latin America. That includes Internet access and wireless as well as land-line services. Telecommunications are often a good way to play emerging markets, and the Latin American portfolio gives you a lot of that, along with the relative stability of Europe. Investors are probably somewhat spooked by its connection to Spain, which is of course the S in PIIGS.
The dividend is well above its five-year average, and with a payout ratio of just 38% there is plenty of room for it to continue raising its payout. TEF also holds the coveted Zacks #1 Rank. Valuation is more than reasonable, trading at 9.4x 2012 earnings expectations.
Royal KPN (OTC: KKPNY) -- if investing in Argentine Banks or Latin American telecoms are too dicey for you, how about a telecom company that serves Holland, Belgium and Germany? Royal KPN provides wireless services to 33.4 million customers, wireline voice services to 4.7 million customers, broadband Internet services to 2.5 million customers, and TV services to 1 million customers. It does not have quite the growth potential of Latin America, but Holland and Germany are pretty stable places.
As with the others, the current yield is higher than the five-year average, but not as dramatically so. Valuation is very reasonable at under 9x next years earnings. With a Zacks #2 Rank, you might get a nice short-term pop in addition to a steady and growing flow of dividends.
Telus (NYSE: TU) is sort of a similar story to Royal KPN, only based in Western Canada, not Western Europe. It serves about 7 million subscribers with wireless and land-line service, including 3G and 4G wireless services.
Its current yield is also above the long-term average, and the P/E is very reasonable at 11.6x next year's earnings. Canada, particularly Western Canada with its natural resource-based economy is growing nicely, and I like the prospects for the Canadian Dollar (Loonie) even more than I like the prospects for the Euro over the intermediate term. Its payout ratio is a bit higher than the others at 63%, but is still well within the safe dividend zone.
As always, remember that a screen should be the starting point for your investing investigation, not the end point. However, if you want both current income and some protection against potential inflation, the list below is as good a place as any to start looking, and don't forget to look abroad as well as at home.
DryShips Falls Short of Estimates
Yesterday after market close, DryShips Inc. (Nasdaq: DRYS) declared financial results for the fourth quarter of 2010 that lagged behind the Zacks Consensus Estimates. The core drybulk voyage segment continues its downtrend. However, renewed oil rig contracts boosted year-over-year profit. In after-market trading on the NASDAQ, stock price of DryShips was up 5 cents (1.01%) to $4.98.
Quarterly GAAP net income was $99.7 million or 29 cents per share compared with a net income of $9.6 million or 2 cents per share in the prior-year quarter. However, in the reported quarter, DryShips gained $16.7 million as one-time special items. Excluding these items, fourth quarter of 2010 adjusted EPS came in at 24 cents, well below the Zacks Consensus Estimate of 26 cents.
Quarterly total revenue was slightly above $215.8 million, up 9.9% year over year but failed to meet the Zacks Consensus Estimate of $222 million. Quarterly Voyage revenue was $113.5 million, down 4.9% year over year. Revenue from Drilling contracts was over $102.3 million, up 32.7% year over year. Quarterly Time charter equivalent revenue (Voyage revenue less Voyage expense) was $106.7 million, down 4.8% year over year.
Quarterly total operating expenses were $137.2 million, down 15.2% year over year. This was mainly attributable to lower voyage expense, vessel operating expense and depreciation and amortization charges, partially offset by higher drilling rig operating expense. Operating income, in the fourth quarter of 2010, was $78.6 million, up 127.2% year over year.
In the fourth quarter of 2010, adjusted EBITDA (which excludes gain/loss from interest rate swaps) was $129.3 million, a considerable improvement over the prior-year quarter adjusted EBITDA of $76.7 million.
At the end of fiscal 2010, DryShips had $391.5 million of cash & cash equivalents and $2,719.7 million of outstanding debt on its balance sheet compared with $693.2 million of cash & cash equivalents and $2,684.7 million of outstanding debt at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.34 compared with 0.26 at the end of fiscal 2009.
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