#$bbva

Las caídas en Bolsa reducen la influencia del sector al 28%. El peso de Santander cae del 16,5% 14,3% en año y medio.

Remember when you could get a 5% yield on a CD? 

Ah, those were the good old days. Today, you’d be lucky to get 5% on a relatively safe “high-yield” junk bond with a 10-year maturity, let alone something creditworthy and with a shorter duration. And yes, these days it is regrettably necessary to put quotation marks around “high-yield.” 

But despite the lack of yield in the bond market, you can still find a respectably high yield among dividend stocks. 

Sure, when choosing high-dividend stocks over bonds you have a little more volatility to contend with. And stock dividends — unlike bond interest — can be cut by a company’s board of directors with no warning and with no legal liability. 

But if my options are to accept a “risk-free” 2% in government bonds, a risky 5% in junk bonds, or an only modestly risky 5% or more in dividend stocks, the choice is pretty clear. And when you add dividend growth into the mix, dividend stocks are a no-brainer for investors hunting for income. Today, I’m going to highlight five solid dividend stocks with high yields of 5% or more.

HCP, Inc. (NYSE:HCP)

I’ll start with HCP, Inc. (HCP), a blue-chip REIT included in both the S&P 500 Index and the Dividend Aristocrats Index following its 30 consecutive years of dividend hikes. 

At current prices, HCP pays a very competitive 5.1%. 

HCP is backed by some very attractive long-term demographic trends, most notably the aging of the Baby Boomers. At 37%, senior housing makes up the largest segment of HCP’s portfolio, followed by post-acute facilities at 31%. Life sciences, medical offices and hospitals fill out the rest of the portfolio at 14%, 13% and 5%, respectively. 

HCP is by no means a sexy stock. In fact, it’s about as boring as they come. But that boring predictability is precisely what makes HCP so attractive as a dividend stock. Over the past 10 years, HCP has grown its dividend at a 4% annual clip, a rate I consider reasonable going forward. 

Between the current dividend yield above 5% and the growth rate of 4%, investors in HCP can expect something in the ballpark of 9%-10% annual returns going forward. That’s not amazing … but it certainly isn’t bad in this market. 

If possible, it’s a good idea to hold HCN in an IRA or Roth IRA because REIT dividends are not always taxed at the more favorable 15%-20% qualified dividend rate. In the quirky world that is REIT taxation, some of a REIT’s dividend may be considered a tax-free return of capital, but most of the dividend will be taxed as ordinary income at the investor’s highest marginal rate. So as a general rule, it’s good to hold REITs in a tax-advantaged account like an IRA or Roth IRA.

Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA)

Next up is the first of two Spanish stocks I wanted to mention, banking giant Banco Bilbao Vizcaya Argentaria (BBVA). 

BBVA yields a very respectable 5.3% based on the past four payouts, and I expect BBVA’s stock price to benefit from a major revaluation of the entire Spanish market over the next several quarters. Spanish stocks are some of the most attractively priced in the world. Spanish stocks trade at a cyclically-adjusted price/earnings ratio (CAPE) of just 12.7, according to Research Affiliates, giving the market as a whole an expected return in excess of 7% per year over the next decade. This compares to a CAPE of more than 27 in the United States and flat expected returns. 

BBVA is attractive for several reasons. First, despite being in beaten-down Europe, it is not exclusively in Europe. Some of its biggest markets are the United States, Mexico and South America. BBVA is a global bank whose stock is treated as if it were completely dependent on Spain’s broken economy. 

Secondly, after multiple rounds of stress tests and capital reviews, BBVA finally capitulated and cut its dividend a little over a year ago. With that cut out of the way — an increasingly a distant memory — I expect income investors to gravitate towards BBVA’s 5.3% yield. And finally, as I mentioned above, Spanish stocks as a whole are very inexpensive, and I expect a general revaluation of the entire market. 

You’ll also want to read on for an important note about European dividends and taxation.

Telefonica S.A. (NYSE:TEF)

Much of my rationale for BBVA is solid advice for fellow Spanish large-cap Telefonica S.A. (TEF). 

Telefonica is one of the largest telecom companies in the world, with an empire sprawling across 21 countries in Europe, Latin America and even China via its partnership with Chinese carrier China Unicom (CHU). Telefonica’s businesses cover everything from mobile phone and internet service to paid TV. 

Telecom is a brutally competitive business these days, particularly in the developed world where internet, cable TV, and mobile phone market penetration reached the saturation point years ago. But Telefonica’s strong presence in the emerging world gives it built-in growth. As consumers continue to move from prepaid mobile plans to contract and data plans, Telefonica stands to increase its revenues per user without the heavy marketing costs associated with pulling users away from competitors. 

Today, Telefonica’s biggest risks come from currency fluctuations in Brazil rather than instability in Europe. This is a problem that may get a worse before getting better, as Brazil’s political crisis stemming from the Petrobras bribery scandal shows no signs of abating. But I believe most of the bad news was priced in a long time ago. Like BBVA, Telefonica found it necessary to cut its dividend due to fallout from the Eurozone debt crisis. In fact, in 2012 Telefonica slashed its dividend to zero. But after the market stabilized, Telefonica reinstated its dividend and hasn’t looked back since. At today’s prices, Telefonica yields a very respectable 6.2%.

Total SA (NYSE:TOT)

Next up, we have another solid European stock pick, French energy major Total SA (TOT). 

Energy stocks as a sector have gotten absolutely pounded over the past nine months due to the falling price of crude oil, and Total is no exception. Compounding the problem for U.S. investors is the fact that Total is a European company whose shares are priced in depreciating euros. 

Still, if you believe as I do that both the crude oil decline and the euro decline have mostly run their course for now, then the European oil majors are an intriguing value proposition. At current prices, Total sports a very impressive 5.9% dividend yield. 

Total has also been steadily increasing its dividend over the past three years. Interestingly, in a bid to become more shareholder friendly, in 2011 Total moved away from the European norm of paying dividends semiannually to the American norm of paying quarterly. While this may seem minor, I applaud any attempt by management to be more responsive to shareholder needs.

Statoil ASA (NYSE:STO)

Finally, we have Norwegian oil major Statoil ASA (STO), a company that has really emerged in recent years as a shareholder-friendly dividend payer. Statoil is an International Dividend Achiever, meaning that it has raised its dividend for a minimum of five consecutive years. Indeed, Statoil has raised its dividend for six years running and currently sports a yield of 5.4%. 

Statoil, which is majority owned by the Norwegian government, is best known for its role in bringing North Sea oil to market. But as the North Sea fields have matured, Statoil has aggressively expanded internationally and now has operations in 36 countries. And Statoil is continuing to invest in Russia, even amidst international sanctions. 

Statoil’s production costs are a little higher than some of the larger oil majors, and with crude prices under $90 per barrel, the company has to borrow to sustain its dividend and capital expenditures, according to Norway-based Sparebank. Yet management has repeatedly reiterated its commitment to its dividend and has indicated that it would sacrifice capital spending on growth projects if that is what was needed to preserve the dividend. And Statoil’s manageable debt load allows it the flexibility to borrow if crude prices stay depressed for longer than expected. 

Statoil’s dividend has to be considered a little riskier than the others I’ve covered here, but I still consider it safe enough to warrant investment. 

Now, you’re actually better off holding the European shares in a taxable brokerage account rather than an IRA if possible. That’s because most European countries withhold taxes on dividends paid to U.S. investors. For example, BBVA and Telefonica are subject to a 21% Spanish withholding tax, and Total is subject to a 30% French withholding tax. Statoil is subject to a lower 15% Norwegian withholding tax. 

But while these taxes are a major irritant, all is not lost. You can recoup a lot of the foreign taxes paid via the Foreign Tax Credit on your annual 1040 tax return. 

The math here is a little complicated, but I’ll try to keep it simple. The credit is equal to whatever you would have paid in the U.S. So, if you would have paid 15% on a U.S. stock, you can get a credit for 15% paid to a foreign country. Using France as an example, you’d recoup half of the 30% dividend tax withheld in France. But to take advantage of this, the shares have to be held in a taxable account.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

With the first quarter down, we don’t have much to show for it. Year to date, the market is flat.

But, that doesn’t mean it’s been boring. It’s been a choppy, volatile year as investors have tried to digest plunging crude oil prices, mixed economic data, and the never-ending speculation over when — or if — the Fed will ever raise rates. 

Adding to all of this, the U.S. market is very expensive, by historical norms. The S&P 500 is trading at a cyclically-adjusted P/E ratio (“CAPE”) of 27.1 — roughly the valuation at the market tops in 1929 and 2007. The only time in history the market has been more expensive was during the 1990s dot-com bubble. Looking forward, this implies annual returns over the next decade of less than 0.5%, or roughly what you might earn on a CD.

Yet, overseas — and particularly in Europe — the picture is a lot brighter. CAPE ratios are lower, implying better expected returns, but this only tells half the story. European stocks are even cheaper than they look, thanks to the double whammy of investors awarding a lower price multiple to already-depressed earnings. (Earnings have been depressed for years by the economic malaise and policy uncertainty following the 2010-2012 eurozone crisis.)    

Europe is cheap. But, within a cheap continent, Spain, as represented by the iShares MSCI Spain ETF (EWP) is a particularly cheap country. And, while Spain is certainly not without its problems (Catalonia is still threatening to secede…), its economy is finally on the mend. Spain’s economy is expected to grow at a 2.5% clip this quarter, and the unemployment rate has been steadily ticking down for the past 12 months. The country is still a mess, but it’s quietly getting its house in order. 

Take a look at the country chart, produced by Research Affiliates, which lists the CAPE (also called the “Shiller P/E”) and the expected returns over the next decade. Research Affiliates expects the Spanish market to return 7% per year. I would be thrilled with a decade of 7% annual returns in Spanish equities, but I think these figures could actually prove to be a little too conservative. Let’s dig into the specifics. 

Research Affiliates builds its return estimates from four pieces: dividend yield, real economic growth, valuation and currency movement. The Spanish stock market currently yields 5%, and Research Affiliates estimates a rather conservative 1.3% real-growth rate. Despite the low CAPE valuation at just 11.6, earnings multiple expansion only accounts for 0.1%. The remaining 0.7% comes from expected appreciation in the euro. 

The high dividend yield speaks for itself, though I expect Spanish companies to boost their dividends at a healthy clip going forward. Some of Spain’s biggest companies by market cap — including Telefonica  (TEF) and Banco Santander (SAN) — have had to slash their dividends over the past few years. But, the pain has now already been taken, and as the Spanish economy improves, I expect to see decent dividend growth. 

The estimate of 1.3% annual growth seems a little on the low side, but I’ll be generous and give Research Affiliates a pass on this one. And, after the massive run the dollar has had, 0.7% attributed to euro appreciation doesn’t seem completely unreasonable. 

It’s the valuation that I think is grossly undervalued here. With eurozone bond yields at record lows, European stocks should be trading at premiums to their long-term averages. But, in Spain’s case, the CAPE of 11.6 is significantly below its long-term average of 15.6. Rather than add 0.1% to annual returns, I believe 0.5%-1.0% seems more reasonable. That would put us closer to 8% annual returns. 

Does any of this guarantee that Spain will outperform over the next quarter? No, of course not. But, I would use any selloffs in the Spanish market as buying opportunities. At current prices, Spain is a developed market offering the potential for emerging-market returns.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

2014 was a lousy year for global value investors. Cheap markets, as measured by the cyclically-adjusted price/earnings ratio (“CAPE”) got even cheaper, while expensive markets got even pricier. (Note: the CAPE takes a ten-year average of earnings as a way of smoothing out the economic cycle and allowing for better comparisons over time.)

I expect this to reverse in 2015. At some point--and I'm betting it could be as early as the first quarter--global market valuations should start to revert to their long term averages. That's fantastic news if you're invested in cheap foreign markets. It's not such fantastic news if your portfolio is exclusively invested in high-CAPE American stocks.

Let's take a look at just how skewed the numbers are. The S&P 500 managed to produce total returns of 13.7% in 2014. But as quant guru Meb Faber pointed out in a recent blog post, globally, the median stock market posted a loss of 1.33%. The cheapest 25% of countries saw declines of 12.88%, while the most expensive markets actually gained 1.36%.

I should throw out a couple caveats here. These were the returns of U.S.-traded single-country ETFs, which are priced in dollars, and not the national benchmarks. The strength of the U.S. dollar relative to virtually every other world currency last year was a major contributor to the underperformance of the rest of the world.

All the same, it's worth noting that we're in uncharted territory here. As Faber noted in a recent tweet, U.S. stock valuations relative to foreign stock valuations closed 2014 at the highest spread over the past 30 years. Four out of the five biggest relative valuation gaps resulted in outperformance by foreign stocks the following year. The only exception was 2014.

Let's dig into the numbers. The CAPE for the S&P 500 is now 27.2. That's a full 63.9% higher than the historical average of 16.6, more expensive than at the 2007 peak, and close to the 1929 peak. The only time in U.S. history where the S&P 500 was significantly more expensive based on CAPE was during the peak of the 1990s tech bubble.  

Sure, the "fair" CAPE is going to be a little higher today than in decades past due to record low bond yields (all else equal, lower yields mean higher "correct" valuations). But I should point out that yields are even lower in most of Europe and Japan, yet valuations are significantly cheaper. So while low bond yields might partially explain why U.S. stocks are expensive relative to their own history, it doesn't explain why the U.S. is expensive relative to the rest of the world.

No matter how you slice it, U.S. stocks aren't the bargain they were a few years ago. Research Affiliates calcuates that U.S. stocks are priced to deliver returns of about 0.7% over the next 10 years. Using a similar methodology, GuruFocus calculates an expected return of about 0.4%.

I've driven home how expensive U.S. stocks are. Now, let's take a look at other global markets. Here are the world's cheapet markets as measured by the CAPE and sister valuation metrics cyclically-adjusted price/dividend ("CAPD") cyclically-adjusted price/cash flow ("CAPCF") and cyclically-adjusted price/book ("CAPB").  All figures reported in Meb Faber's Idea Farm using original data from Ned Davis Research.

We see some familar names on the list. Greece remains the world's cheapest market by a wide margin. Of course, Greece is also in the middle of an election cycle that may well result in the country getting booted out of the Eurozone.

Interestingly, Russia is cheap following Western sanctions and the collapse in the price of oil, yet there are several far more stable countries that are cheaper, such as Austria, Portugal, Hungary and Italy.

Two countries that I've liked for years based on valuation--Brazil and Spain--round out the top ten. To put things in perspective, Spain trades at nearly a 60% discount to the U.S. market based on CAPE.

Yes, Spain has its problems. Its economy is stuck in a slow-growth rut, and unemployment remains over 20%. But Spain is also home to some of the world's finest multinationals, such as banks BBVA (BBVA) and Banco Santander (SAN), telecom giant Telefonica (TEF) and fashion retailer Inditex (IDEXY).

There are different ways to use this data. You could buy and hold country ETFs, such as the Global X FTSE Greece 20 ETF (GREK), the Market Vectors Russia ETF (RSX) or the iShares MSCI Spain ETF (EWP). Or you could go with a convenient one-stop shop like Faber's Cambria Global Value ETF (GVAL).

GVAL is nice collection of cheap stocks from around the world. As of last quarter, GVAL's largest country weightings were to Brazil, Spain and Israel.

Disclosures: Long GVAL, EWP, BBVA, SAN, TEF

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

In the last month of 2014, investors have two chief concerns: lackluster holiday sales and the sudden collapse in crude oil prices. On the surface, neither of these should be causes of major concern. Retail sales remain higher than last year when you look at year-to-date figures for 2014. And falling energy prices mean more money available for discretionary spending.

There’s one big problem, however. U.S. stocks are very expensive based on traditional value metrics such as the cyclically-adjusted price/earnings ratio (“CAPE”), and continued robust growth had already been baked into share prices. If the growth that investors had expected fails to materialize, the U.S. market could be looking at a nasty correction.

The best time to make major new equity purchases are when prices are cheap and expectations are low. Any marginal improvement comes as a surprise to Wall Street and provides the impetus for a rally.

These are precisely the conditions in place today in Spanish stocks. Spain was one of the hardest-hit countries in Europe’s back-to-back crises. The 2008 meltdown crippled the Spanish construction and banking industries, and the following Eurozone sovereign debt crisis utterly crushed confidence in the Spanish economy. More than one in four Spaniards—and well over half of Spain’s youth—were unemployed by mid-2012.

Spanish stocks, as represented by the iShares MSCI Spain ETF (EWP), collapsed in value. Seven years after peaking in late 2007, EWP is still down by nearly 50% today, before taking dividends into account. At the pits of the Eurozone crisis, EWP was down by fully 70%.

After a thorough thrashing like that, Spanish stocks are now priced to deliver solid returns. Spanish stocks sell for about 9 times cyclically-adjusted earnings (i.e. average earnings of the past 10 years). Meanwhile, U.S stocks trade at about 25 times cyclically-adjusted earnings. Assuming that stock returns in both markets regress to their long-term averages, this means that Spanish stocks are priced to deliver returns of more than 50% over the next five years. American stocks are priced to deliver returns of less than 7%. And again, those are cumulative returns over the next five years, not annualized.

In my view, these figures actually understate how cheap Spanish stocks are at current prices. Remember, the CAPE takes a rolling 10-year average of earnings. Well, Europe has been in an almost continuous state of crisis since 2008, meaning that earnings have been depressed for roughly seven of those ten years. Yes, earnings were abnormally high going into the bust due to Spain’s housing and finance boom of the early and mid 2000s. But after seven years of jarring economic turmoil, most of those bumper earnings are no longer included in the calculations.

Meanwhile, Spain is slowly creeping into growth again even while Germany and the Eurozone core stumble. Latest estimates have the Spanish economy growing at 1.2% in 2014 and 2.0% in 2015. That may seem modest, but it’s not wildly better than what the Conference Board expects for U.S. GDP growth. The Conference Board expects U.S. real GDP growth of 2.2% for full-year 2014 and 2.6% for 2015.

Now, what makes more sense: To own Spanish stocks trading at barely a third the valuation of U.S. stocks as measured by the CAPE or expensive U.S. stocks with lofty growth assumptions already built into prices? I think you know the answer.

I like the iShares MSCI Spain ETF as a broad play on Spanish stocks, but I also believe that investors can do well by picking and choosing individual Spanish stocks. I’m currently long Spanish banking giants Banco Santander (SAN) and BBVA (BBVA) and global telecom operator Telefonica (TEF).  I’m also long two more exotic plays on a Spanish recovery, REITs Lar España and Hispania.

As newly-formed REITs that only began trading this year, book value is a reasonable estimate for the REITs liquidation value. And at current prices, Lar España is trading at a 10% discount to book value while Hispania is trading at a modest 4.7% premium.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.