DIVIDEND SPOTLIGHT

 New Stock Added to the Global Income Edge Aggressive Portfolio

By Robert Frick
Managing Editor
Global Income Edge

 5.68% Yield – China – Industrials

 This China-based company is the owner of independently-chartered container ships.

 We are drawn to this stock because of its predictability. Their entire business is based around the long-term, fixed-rate time charters of 79 massive container ships.

 It’s a rental-based business model, so they don’t even have to pay for fuel – all of that is the responsibility of the shipping company. They’re also not directly responsible for fallout due to weather, pirates, dock strikes, cargo problems, or other maladies of the shipping trade.

 So you get all of the benefits from a shipping company, but very few of the risks. Since its IPO in 2005, this company has continued to increase its dividend.

 Dividends like this are what make income investing so worthwhile, and are the focus of our premium publication Global Income Edge – find out more here.

 FEATURE ARTICLE

The Bear in the Room  

During the Internet Bubble, one warning sign it would pop was the book “Dow 36,000.” Today it’s Morgan Stanley predicting the Standard & Poor’s 500-stock index will hit 3,000 in the next five years – that would be a 50% gain from the S&P’s current level.

Both are predictions of radical new highs when the market is already pushing its limits. Morgan Stanley economists based their forecast on earnings growth of 6% a year and a S&P 500 price/earnings ratio of about 17, according to new report titled “2020 Vision: Long Live the Expansion.”  

Given some big companies are growing earnings greater than 5% that might seem possible at first glance.  But the growth is based on Federal Reserve stimulus (which is being cut back) and stock buybacks (which are being cut back).

What is generally driving the earnings growth, according to investment bank Societe Generale, isn’t improvements in cash flow. The bank found one-time gains such as write downs, assets sales and restructuring charges were often responsible. In a report, the bankers echo a concern shared by many that income gains come from cutting expenses rather than investing in new business.

Another concern comes from University of Massachusetts professor William Lazonick in a recently published paper in the Harvard Business Review titled, “Prosperity without Profits.”Lazonick found profits were spent on stock buybacks and dividends instead of investing in new business.

His study showed that from 2003 through 2012 companies in the S&P 500 used 54% of their earnings—$2.4 trillion—to buy back their own stock, Dividends accounted for another 37% of their earnings. That left “very little” for improving productivity or paying employees more, he wrote.

Meanwhile, some asset managers are betting against the market. According to Bloomberg, Oaktree Capital Group, the world’s biggest distressed-debt investor, is seeking $10 billion for a new fund with plans to sit on most of the money until rising markets reverse course. An Oak Capital manager told Bloomberg that the combination of a drop in credit standards and the record in new junk bonds means more of the distressed debt they feed on is coming.

Demographics are Destiny

I’d love to see five more years of expansion, but I’m not betting on it – except when it comes to certain global companies, such as the ones we’ve selected for the Global Income Edge portfolios.

Global companies tap emerging markets, and emerging markets are where the growth will be. The new book by economist Thomas Piketty, entitled “Capital in the 21^st Century,” says that from 1900 to 1980, 70% to 80% of the global production of goods and services were concentrated in Europe and America. By 2010, the European-American share had declined to 50%, or about the same level of 1860. He writes this share will probably “continue to fall and may go as low as 20% to 30% at some point in the twenty first century.”

Piketty isn’t the only one that has been focusing on these issues. In its recent World View paper, J.P Morgan Asset Management finds that the, “The U.S. economy is likely to grow at a rate closer to 2% instead of its long-term average of 3% in part because fewer workers are entering the workforce. Most developing countries don’t have that problem.

So while the growth of developed economies in general, and the U.S.’s in particular, is debatable, the growth of developing markets isn’t. And that means a smart global investment strategy that safely taps developing markets is in order.

As U.S. Stocks Overheat, Investors Look Abroad

 Now that the DOW has crossed 17,000, it’s time to consider hedging your portfolio with solid income from beyond the shores of the U.S.

 We know that the prospect of investing abroad can be intimidating for many investors. That’s why we’ve made it simple… every single global stock we list is available on a U.S. exchange.

 Not only does this guarantee that our stock picks easy to buy, but it also means that we can verify financial data with certainty.

 So don’t let the word “global” scare you away from the high-yield dividend stocks you need. See our list of dividends from the U.S. and abroad… click here.

 WEEKLY INCOME TRIVIA QUESTION

Q: Which country has won the most World Cups?   

Know the answer? Send your response to: GlobalIncomeEdge@yahoo.com — the first correct response will receive a free Global Income Edge T-shirt or mug!

The answer will be provided in next week’s issue.

Last week’s question was: Is most of the world’s seafood caught, or raised commercially?

The answer: Most of the world’s seafood is caught from the sea, though commercially-raised seafood is expected to take the lead by 2030. This Norway-based salmon company trades on the New York Stock Exchange and is part of our aggressive portfolio. Currently yield: 21.5%. Learn more about this must-have stock, click here.