Income Triple Plays

Posted by Nilus Mattive - Money and Markets

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Utility ADR

Tomorrow is my dad’s 63rd birthday and his card is on its way. Of course, I already sent him a few presents more than a week ago — the first recommendations for his new income portfolio. And I’m happy to say that those first positions are doing great so far.

One of them — a foreign utility company — already produced a 6.3 percent return in the first six trading days my dad owned it (and that includes the commission to buy it).

Let me put that into perspective for you: While it represents just four percent of the overall portfolio, this one income stock has already handed dad four times the return he would have received had we left his ENTIRE portfolio sitting in a money market fund for a full year!

And for a number of reasons, I think this is just the beginning of what dad can expect from this new holding. That’s because it’s one of my favorite …

Foreign Dividend Payers with a Currency Kicker!

Like I said, this company is a foreign utility. But it trades here in the U.S. as an American Depositary Receipt (ADR).

ADRs give U.S. investors a way to buy overseas shares without having to use foreign trading desks, and with all the same protections and assurances they’re used to with regular domestic stocks.

Thus, ADRs can quickly and easily give you a stake in other countries that may be growing faster than the U.S. … or where specific trends may be presenting unique profit opportunities.

Better yet, they can help you profit from foreign currencies. That’s because ADRs trade in relation to their foreign-listed counterparts, which are priced in their home currencies. So if the foreign currency appreciates against the U.S. dollar, an American investor’s ADR holdings will automatically increase in value, too.

In addition, the same dynamic is at work with any dividends paid by the ADR: Since the U.S. investor is receiving dividends in dollars, but the rate is determined in a foreign currency, the paychecks can grow just by virtue of the foreign currency rising against the greenback.

The inverse is also true, or course. But if you do your homework, you can clearly tilt the odds in your favor when it comes to currency effects. The key is simply selecting ADRs that are based on currencies you consider undervalued relative to the greenback.

I Call These Companies Income Triple Plays Because
That Added Currency Potential Is Just the Beginning

Perhaps the best part is that the potential for a currency kicker is just the icing on the cake when it comes to dividend-paying ADRs.

For starters, you still have the possibility of regular capital appreciation as you would with any stock.

Again, take my dad’s current holding — one of the primary reasons I recommended it was because I think it is inherently undervalued at current levels, whether you’re looking at it in its home currency or U.S. dollars.

Why? Because investors have been discounting this company’s operations because of where they’re located and I think they’re completely underestimating just how much cash these businesses will generate even during continued economic weakness.

Utility ADR

The shares haven’t been trading much higher than they were during the major market bottom in March 2009. So in my mind, not only does that give them built in downside protection, it means they have far more appreciation potential if the markets rise from here.

In fact, I believe the ADR could easily double from current levels within the next year. It has traded that high in the recent past.

What about dividends? The stock’s current indicated yield is north of 8 percent annually … and the company has boosted dividends consistently!

So when you combine it all — generous and rising dividends, capital appreciation potential, and a currency kicker — it becomes pretty obvious why I call select foreign dividend payers “income triple plays” and also why I’ve told my own father to put some of his retirement funds into one.

As part of an overall portfolio, they can provide a much needed income boost and provide much-needed diversification. I encourage you to do some digging on your own — you’ll be amazed at what’s out there right now!

Best wishes,


P.S. What about the other recommendations I made for Dad’s Income Portfolio? He also bought a very attractive energy company, and is sitting on open gains there too. Plus, dad still has an open order on a telecom company (we’re waiting to see if he gets filled on that one). If you want all the details on my current — and future — recommendations, plus the chance to see my own dad’s actual brokerage statements, join our new service today. A full year will run you just $89! Click here for all the details.


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