Tuesday January 26, 2010
"WisdomTree International Utilities (NYSE: DBU) is an excellent way to diversify outside of the US in a defensive portfolio of quality stocks," says Carla Pasternak in High Yield International.
"This exchange-traded fund tracks the WisdomTree International Utilities Sector Index of international dividend-paying utilities outside of the United States and Canada.
"To be included in the index, companies must have paid at least $5 million in cash dividends on their common stock in the prior year. Positions are weighted based on the amount of regular cash dividends paid.
"By its prospectus, DBU must pay distributions at least annually, and did so in 2007 and 2008. However, the fund has paid quarterly distributions in 2009.
"This year, DBU has paid varying distributions in March, June and September (ranging from $0.15 to $0.58 per share) and has not yet announced a December distribution.
"Based on the average payment for the first three quarters, I project an annual distribution about of $1.25 for 2009. That amount translates to a yield of 5.5% at today's price ($1.25/ $22.70).
" However, investors should note the fund is often mistakenly presented on financial websites such as Yahoo! Finance as carrying a double-digit yield based on payments of $2.24 per share made over the past year, including the annual payment of $1.30 made in December 2008.
"All the distributions have been sourced from investment income, and in 2008, 94% of distributions qualified for the reduced 15% tax rate. The fund has a low expense ratio of 0.58%.
"As of mid-December, top country allocations accounting for nearly 60% of the assets, included France, Italy, Germany, and Spain. Top company positions are French electric utility giant GDF Suez, the world's largest utility Electricite de France, and German utility giant RWE AG.
"DBU, like the utility sector in general, has been overlooked and undervalued in this market. However, the outlook for utilities should be attractive going forward. They haven't gotten pricey in these soaring markets, and many still pay strong yields.
"Investment guru Bill Gross has even recently advocated investing in utilities as a way to play slow economic growth going forward.
"Utilities have historically been a fairly recession-resistant business. People turn on the lights and run water in good times and bad. DBU offers investors a way to diversify outside the U.S. and dollar-denominated assets while investing in solid dividend-paying companies that typically pay higher yields than their U.S. counterparts.
"This fund is an excellent way to diversify outside of the United States in a defensive portfolio of quality companies. If you are worried about the strength of the global recovery, DBU might be a good place to invest."
