Don’t like what the dollar is doing? Well, don’t let Wall Street hold your money hostage. Here’s a pile of payers that get you past the dollar doom.
The dollar might be holding up well against a number of currencies including those of some of our key trading partners. But many of us remain more than mildly concerned as we watch the dollar do its current version of the slip and slide against the euro as well as the pound and other key European currencies.
As an investor, you need to set emotion aside and buy or sell based on facts. And while there might be plenty of emotion over the current state of the dollar – the fact is that the euro and the pound are delivering what the dollar isn’t.
This means that if we focus on businesses that are based – and earn their keep – in the core markets of Europe, we can not only reap the rewards of getting cash out of the dollar and into rising currencies…but we can also boost our income as we convert dividends that are paid in euros into more and more dollars.
The key is to buy companies with most of their revenues in their local markets, and to make sure that they’re going to be steady utility players that will be able to keep paying you to own them not just this year, but for years to come.
Utility Players: Essential for Every Portfolio
In sports, utility players usually don’t get many headlines – nor do they get folks lining up hankering for autographs like the big headliners do. But these are the guys on the team that help the headliners to make the big plays and have their photos splashed on the front pages of the sports section.
To be successful, teams have to keep grinding out victories and avoid costly defeats week after week. And usually this comes down to guys without the big numbers, but who perform consistently day in and day out.
The same thing holds true for your portfolio – you need the utility players of the markets.
That means companies with customers who will be there quarter after quarter, year after year – sending in their checks that over time add up to ample cashflows – making it possible to keep sending dividends your way.
Utilities might sound like a boring term for companies that meet this basic criterion of stocks that pay you. So, over the years many in the markets have come up with more appealing terms, including one of my favorites: essential services. And really, when you think about it – an essential service is perhaps the best sort of utility player that you and your retirement portfolio can have on your investment team.
The crucial essential services come down to providing power to keep the lights and heat on, the water running, and your phones and internet connected.
Power, phone and water companies have it made – as long as management doesn’t get too bored collecting checks. This means avoiding temptations such as expanding into Wall Street trading schemes, taking on too much leverage, or getting into markets and businesses that aren’t in their companies’ core competencies.
Unfortunately, over the past couple of decades, many utility players trying to become big headline hitters have struck out – culminating in losses and in some cases even bankruptcy.
So our task as investors is to focus on the utilities that stick to their knitting – or at least are so dominant in their core markets that they can keep going even if a few managers go rogue trying to rev up their numbers in the wrong businesses.
Our Essential Portfolio Picks
Let’s start with a couple in Germany that are two of the biggest businesses in their core markets – RWE (RWNFF) and Deutsche Telekom (DTLSF).
Both of these stocks trade all around the world on just about every market. And in the US you can buy them either directly in the OTC market or via ADRs. I tend to like buying the actual shares – because you get more of the dividends without Wall Street taking its cut and you get more control in terms of any voting and share exchanges and rights that might come along.
Don’t get nervous about buying the real ordinary shares – often on the so-called pink sheets of the US OTC market. These are the big companies that just didn’t want to bother with the NYSE. Watch the bids and offers and put in your orders accordingly to your broker.
RWE has been a long-term favorite of mine that I’ve recommended over and over again in my past publication postings. And over the years, this electric power provider – as well as its water, petrol and coal operations – keep pumping out the profits and, for shareholders, dividends.
Revenues keep growing by double-digits year after year. And with ample margins the dividends are always well-backed. In fact, the current dividend yield of 7.3 plus percent has been increasing over the past 5 years by over 29 percent per year.
That’s not to say that the markets will always be positive on the stock during any series of weeks or months. But over the past year – including all of the messes out there – this stock has generated a return of more than 46 percent. And over the past five years, US investors following my lead have more than doubled their investment with a return of over 115 percent.
Now when it comes to phone companies, Deutsche Telekom isn’t one that I’ve been much of a fan of. But it’s a company that continues to perform – in some ways despite the efforts of management.
The key to this company, from an investor’s standpoint, is that even with several ill-advised dalliances with new ideas – at its core – Deutsche Telekom is one of the truly essential companies in its core markets. So, it can afford to make mistakes and still keep generating piles of cash which in turn makes it possible to keep paying investors every year.
And with the stock price down a bit – now is one of the times to buy into this steady payer that is throwing off a dividend of more than 8.1 percent.
And while it might not be expected to boost that dividend – it should continue to pay it.
Beyond Germany, France is one of the other core markets of Euroland. And the duo in Germany has two French peers in the phone and energy businesses that will fit nicely into your portfolio.
GDF Suez (GDSZF) and France Telecom (FNCTF) also trade their ordinary real shares in the US OTC market.
GDF Suez arose from the combining and remaking of Gaz de France and Suez. The company is focused on delivering natural gas and related products in key markets in this core economy.
Revenues are still very solid and on the ascent, with gains running nicely in the double-digits. Margins are fat and steady in its markets, which keeps the cashflow flowing. With low debt and good margins, the dividend rate is well-padded for our certainty. And with a dividend paid semi-annually yielding more than 7.5 percent, it should help to gas up your investment income.
France Telecom follows in line with Deutsche – meaning that it continues so succeed even when it tries to move too far beyond its core businesses.
But with ample revenue and cashflows, the dividends are well-supported and increasing at a 5 year rate averaging over 41 percent gains. The current yield is over 7.8 percent – and of course that’s worth even more since it’s paid in euros.
Dividends by the Pound
Now, the UK still manages to operate without the euro. Instead, London keeps the pound around and while not quite as impressive as the euro against the dollar, it’s still a whole lot more valuable for US-based investors seeking to hedge a bit more against a gloomy buck.
There are two essential services companies based in the UK that are focused on delivering, processing and cleaning the most valuable of natural resources: water.
United Utilities (UUGWF) operates primarily in the regulated water markets in the north and west of the nation. And while much of its industry has gone through the wringer during a host of privatization efforts over the past many years – United keeps pumping and cleaning the water and getting well paid to do it.
Dividends keep coming and right now United gives you a yield of over 7.7 percent – paid in pounds.
Severn Trent (SVTRF) has been the focus of several of my issues this year. Not only does it have a nice core business of delivering and processing the water in its home market – but it has a very industrious subsidiary based in Southeastern Pennsylvania that is going to provide a nice bit of growth.
Its specialty is working on new water treatment operations, including several in China. So on top of the nice steady cashflow from its core water utility operations – this is one utility player that has the potential to become a star player.
With a dividend in pounds paying over 7.2 percent – it makes for a nice, well-watered buy for your portfolio.