Capture 13% Dividend Yields in this Ultra-Safe Foreign Country

February 26, 2008

With the U.S. headed toward a possible recession, and with yields abroad simply beating the pants off of those in the U.S., it's a mistake not to look internationally for a solid income stream. In fact, if you want truly high yields, then you need to look overseas. For example, while U.S. shares pay less than 2%, the average stock in many foreign nations is now yielding 2X or 3X that amount!

It's a cash-flow desert here in America for anyone who needs to bank a comfortable income off their portfolio. So if you're one of the millions of Americans currently settling for sluggish 2% yields on U.S. stocks, 3% yields on CDs, 4% yields on government bonds, or pathetic 0.42% yields on savings accounts (that's right -- the current national average sits at less than 0.50%!), then it's time to start looking elsewhere for higher returns.

While most Americans are reluctantly accepting sub-par yields, a select group of savvy, well-informed investors are quietly piling into some of the world's most attractive dividend-paying stocks -- securities with yields of 8%, 10% . . . even 12% or more. But these stocks can't be found in the U.S. Instead, our research shows that 93% of the world's highest-yielding stocks are actually located overseas.

In today's article, I'm going to introduce you to one of my absolute favorite hunting grounds for high-yield investments -- a wealthy, ultra-safe foreign country that's dishing out healthy dividend yields of 13% or more.

This large, English-speaking nation is as modern and developed as anywhere in the world. Its people are considered warm and friendly, and they're well-known for their patriotism and individualism. This nation is also rich in natural resources and other important commodities, many of which are now hitting fresh all-time highs. Meanwhile, its economy is solid and unemployment sits below 5%.

Sound a lot like the United States? It sure does . . . but you'll be surprised to learn that I am referring to Australia. That's right -- the "land down under" happens to be one of the best-kept secrets on the planet when it comes to capturing ultra-safe, abnormally high dividend yields.

Australia: A Gold Mine for Yield-Hungry Investors
Australia is a conundrum to most Americans. We feel a connection to the English-speaking, individualistic and informal Australians -- and to their sprawling country, with its modern coastal cities and rugged, sparsely populated frontier. I've always had a soft spot for the land down under because it's home to many of my relatives. When my grandparents came to the U.S. from Hungary in the 1930s, the rest of the family moved to Australia. They've since multiplied and spread across the country; if you're visiting and run across someone with the last name of Polya down there -- tell them Cousin Nick says g'day.

But family connections aside, most Americans know little about Australia's financial markets and rarely think to invest in them.

That's too bad, because Australia has a lot to offer investors. For one thing, it's an economic center for the Pacific Rim, particularly Southeast Asia -- one of the most vibrant and fastest-growing economic regions on Earth. About 60% of Australia's exports go to Asia, so its economy is less vulnerable to slowing economic growth in the U.S. than many others around the world.

Now is a particularly auspicious time for Australian stocks. The economy is growing robustly -- GDP is expected to rise +3.8% in 2008, according to the latest estimates from the International Monetary Fund (IMF). That's more than double the growth expected from other developed economies like the U.S., Europe and Japan. Unemployment is low -- around 4.4% -- and inflation seems under control.

And as mentioned, Australia is also rich in natural resources -- including raw materials such as copper, nickel, and zinc, and agricultural commodities such as wheat -- just as the prices of raw materials are enjoying a multi-year boom. With inflation picking up in the U.S. and elsewhere around the world, shares of companies that own or produce agricultural or industrial commodities could be among the world's top performers in 2008 and beyond.

Another plus: the Australian dollar has been rising vs. the U.S. dollar, boosting the value of Australian investments held by Americans. In 2007, the Aussie dollar rose +10.9% vs. the U.S. dollar. So an investment with a pre-currency total return (share-price appreciation plus dividend yield) of +10% would actually have delivered an effective total

return of +20.9% thanks to the currency boost.

I think the Australian dollar will continue to perform well vs. the U.S. dollar, partly because our own greenback is being pushed lower by forces that are unlikely to let up in 2008: a continuing trade imbalance, a federal budget deficit and rising inflation. Meanwhile, the Federal Reserve is lowering interest rates because it's trying to stave off a recession with an easy-money policy. (The Fed also has to continue to nurse the U.S. financial-services sector through the subprime-mortgage crisis.) And Australia's central bank is raising interest rates because the relatively strong economy there threatens to push inflation higher.

When the yield gap between two countries' core interest rates -- and thus their government-bond yields -- widens, it usually boosts the currency of the country with the higher-yielding bonds. That's because institutions around the world always search for the highest yields. So right now, they're flocking to Australian bonds -- which means buying more Australian dollars.

There's another important factor that encourages me to invest in Australia.

Stuck on its own continent, Australia could be crippled by dependence on far-away energy sources to fuel its growing economy -- but it isn't. Fortunately for the Aussies, they're sitting on one of the world's largest supplies of natural gas. It's enough to supply their energy needs for the rest of this century. So while the U.S., Europe and Japan struggle to keep up with rising oil prices in a world in which demand is rising while supplies are falling, Australia will have a competitive advantage in the years to come.

And lastly, Australian companies tend to pay enticing dividends. As my chart shows, the average Australian company pays a 3.6% yield -- double that of comparable U.S. companies. And remember, those are just the averages, weighted down by large numbers of stocks that don't yield a cent. When you start honing in on Australian companies that are actually paying out cold hard cash, you quickly discover dozens of firms with impressive double-digit yields.

Attracted by the nation's compelling mix of a stable, fast-growing economy and a large number of high-yielding stocks, I recently took a long, hard look at some of today's most attractive Australian companies. I

spent weeks poring over financial statements, digging through news articles, and talking to some of my high-level contacts -- mutual fund managers and other experts who specialize in the region. In the process, I discovered one of my absolute favorite high-yielders on the planet -- an Australian natural gas distributor that serves nearly 1 million customers.

Like many operators here in the U.S. and Canada, this company enjoys monopoly control over its extensive pipeline network. And it's involved in one of the most stable businesses known to man -- it charges government-regulated fees in exchange for pumping gas through its network. Thanks in large part to these steady fees, this firm brings in copious cash flows, helping it deliver a 13.0% dividend yield.

I also found one of the world's biggest zinc and lead producers -- a great play on the global boom in commodities. Paying a juicy 11.3% yield, this aggressive company is one of the world's most intriguing mining firms. And thanks to booming commodity prices, its share price should continue to move strongly higher in the coming years.

If you'd like to learn the name of these companies -- plus receive a steady stream of foreign stocks, funds and other investing ideas with abnormally high dividend yields each and every month -- then I'd like to extend you a personal invitation to try my premium international investing newsletter . . . High-Yield International. Visit this link to learn more.

Thanks for joining me on my search for today's highest-yielding securities!

-- Nick Lanyi
Editor, High-Yield International

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With average yields abroad beating the pants off of those in the United States, with economic growth soaring in countries like China and India, with the U.S. dollar plummeting, and with world-class investors like Warren Buffett now scrambling to invest overseas, savvy investors need to start looking abroad in search of solid, reliable income. Click here to read in-depth answers to the 10 most important questions about international income investing.

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