Global Trader: Look Overseas For Yields

Cash is the lifeblood of every sustainable enterprise . . . and the flow doesn’t stop at U.S. borders. If you’re a shareholder of a foreign company, you’re eligible for any dividends management decides to pay.

That’s important when you’re trying to lock in sources of reliable investment income in a world where “Treasury is trash” to retail investors with their eyes open. For a lot of us, dividend stocks are a way to get income while keeping the prospect of actual capital gains open as well.

After all, companies can grow organically and pass on increased cash flow to shareholders. Bonds don’t work that way.

But in a world where so much money has already crowded into dividend stocks, it’s hard to find reasonable yields here at home. Buy the utilities sector at today’s prices and you won’t even be able to lock in 3% a year . . . even assuming that they maintain their distributions at this level.

Real estate, another traditional income sector, is even more crowded right now, practically overloaded with nervous capital.   And practically all the big REITS and utilities traded on Wall Street are concentrated on U.S. assets and U.S. operations, which means U.S. investors have already figured out how they work.

That’s why it can be liberating to look overseas for undiscovered yield opportunities. These companies aren’t usually what I’d consider ultra-defensive names, which in this case signals that there’s room for upside.

They can always fail to maintain their place in the global economy, in which case management will need to cut dividends. But the odds are actually higher that they’ll expand over time.

An expanding company will either raise its shareholder distribution or the shares themselves will support a higher price. Either way, investors win.

What am I looking at? Start on the conservative side. Swiss box maker Amcor (AMCR) is traded on Wall Street and should be able to maintain a $0.12 per-share quarterly dividend.

That’s a 4% yield right now. And this is what the company pays when the global economy is under stress.

In a boom, that dividend doubles . . . and shareholders get a chance to lock in 8% a year without having to sell any stock along the way.

Using AMCR as a benchmark reveals other foreign yield opportunities that haven’t made their way to the S&P 500 but are still available to U.S. investors.

Canada’s Suncor (SU) is an obvious one at the 4% level. Shale giant. Enough said. Throw in more conventional BP (BP) and you’ve diversified your energy exposure away from U.S. producers while raking in roughly what mighty Exxon (XOM) pays every three months.

If you’re feeling ambitious, stretch to Brazil, where Ultrapar (UGP) is another oil company paying 4% a year. Although the national giant Petrobras (PBR) nominally pays 11%, I just don’t trust the management arrangement there to keep the dividends flowing forever.

Maybe it’s worth a few PBR shares in your portfolio just to add a little sizzle. But in that scenario, you’re taking on significant risk . . . for advanced income investors only.

Just look at Vale (VALE) across the Brazilian market for a cautionary tale. Yes, it paid out $2.77 per share in the trailing 12 months, but that reflects relief as the pandemic receded and China started buying iron ore again.

In reality, VALE can go a full year without handing shareholders more than $0.45 per share, which is basically all Treasury debt pays now . . . and bonds are a whole lot less volatile.

If you need income, hold off on VALE until you get the next dividend announcement. Even then, consider taking the cash and then cashing out.

Likewise, while I’m fond of shipping companies like Zim (ZIM) and OceanPal (OP), which operate out of Israel and Greece, respectively, their quoted yields are a little outdated and refer to extraordinary distributions.

Shareholders have already gotten their windfalls there. ZIM can sustain its yield. OP is an open question. Always go toward the more sustainable choice.

Speaking of Israel, I’m intrigued with a tiny security equipment company, Senstar (SNT). It’s quoted with an insane 45% yield, which reflects a $1.72 per-share distribution from last year.

For a $2 stock, that’s obviously a big, big deal. But while I don’t expect that level of payout ahead, I wouldn’t be surprised if management can keep at least a little cash flowing from year to year.

After all, the business might not be booming, but it’s profitable enough to generate about $12 million a year in EBITDA. For a $54 million stock, that’s a lot of money.

Earnings are coming next week. Let’s see where SNT goes.