Three Emerging Market Dividend Stocks to Buy Now

Steve is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Happy belated New Year!

OK, enough of the frivolity. Let's get down to business.

Stock markets worldwide celebrated the ceremonial "kicketh of the can" on Wednesday as the value of virtually everything except the dollar, US treasuries and my beer can collection went up.  But we're all smarter than that and didn't get sucked into the fleeting sigh of relief.

Whether or not this deal is the solution to America's woes is kind of irrelevant for us Fools. We're here to invest in good companies that are willing to share the spoils of their success through dividend payments.

And while predictions for growth in the US are fairly anemic (and do vary greatly) few would argue against the need for investors to diversify with emerging market stocks.

It is likely that over the long term some emerging market economies will continue to outpace growth in the good ol' United States of America. So if we can get our grubby little hands on shares of good emerging market companies with attractive dividend yields we'd be "fools" of a different kind not to.

So here we go, three emerging market stocks to put away for a long-term rainy day:

1. Vale (NYSE: VALE) is a Brazilian metals and mining company.  It is the world’s largest iron ore producer and a major exporter to China.

The stock is attractive.  It has a five-year average dividend growth rate of 20.28% and a current dividend yield of 5.57%. Its five-year average annualized earnings-per-share growth rate is 24.29%.

The challenge for Vale is that its success is closely linked to that of China’s domestic steel industry. And China is increasingly producing more of its own steel. 

As China does it will have a potentially negative impact on Vale’s bottom line. This presents a risk to the stock price and a need for Vale to expand relationships with other customers. 

Vale is addressing this issue.  It should thrive even if it is exporting less to China thanks to trade relationships in other developed and emerging markets.

2. Yanzhou Coal Mining (NYSE: YZC) is a Chinese coal producer.  It has mining operations in China and Australia and exports to several other countries. 

YZC has a five-year average dividend growth rate of 41.93% and a current dividend yield of 5.28%. Its five-year average annualized earnings-per-share growth rate is 36.04%.

Like Vale, Yanzhou's success is determined in large part by the Chinese economy, despite its non-domestic business.  But there are hundreds of millions of Chinese waiting for the elevator to lift them from poverty to the middle class.  

There's going to be a lot of coal burned in order to meet future growth, environmentalists be damned.  Yanzhou should benefit.

3. Braskem (NYSE: BAK) is a Brazilian producer and distributer of chemicals and resins in Brazil and abroad. 

BAK has a five year average dividend growth rate of 29.98% (including a suspended payment in 2009) and a current dividend yield of 4.35%. Its annualized earnings-per-share five-year average growth rate is 37.79%.

Braskem released earnings in early November.  Overall sales grew by 19%.  The domestic market expanded by 1% when compared with the third quarter of 2011 and domestic sales rose 11%.  EBITDA was R$930 million in the third quarter, an increase of 10% over the previous quarter.  EBITDA increased 26% compared to the second quarter of 2012 on a recurring basis.

But both Fitch and Moody's changed their outlook for the company from "Stable" to "Negative" that same month.  This drove the stock price lower.  It has since recovered much of those November losses.

Of the three companies BAK is the riskiest proposition.  But it also may contain the most opportunity.   

<img src="/media/images/user_950/bak-2-yr_large.png" />

BAK had lost nearly two-thirds of its value from its 2011 highs before beginning to move back up in June 2012.  At $14.00 per share it is still down more than 50% from those highs but may have bottomed.  A near-term move higher of 10% or more is likely.

YZC is also down a lot; more than 50% from its 2011 highs.  Take a look…  

<img src="/media/images/user_950/yzc-4-yr_large.png" />

It too seems to have bottomed.  With a little firming up of the Chinese economic outlook YZC could trade back into the low to mid-20s, providing investors with double-digit gains.

Vale has done the least poorly of the three since 2011.  It is also down from its highs but has appreciated more than 25% since September 2012.  

<img src="/media/images/user_950/vale-4-yr_large.png" />

All three stocks are involved in businesses that will be integral to the continuing development of their domestic economies and the international ones they export to.  The question is of course one of time. 

Could these shares trade lower?  Yes.  Will they be worth more in the future?  Probably.  Keep those dividends coming and I will gladly and patiently participate in the next leg up in the ongoing emerging market story.


SteveoCFP has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus