Federal Reserve Chairwoman Janet Yellen’s comments that the U.S. economy is well positioned to grow despite weak first quarter economic growth boosted investor sentiment. An increase in consumer price index also bolstered the view that the economy is gaining momentum.
However, equity markets continue to grapple with high levels of volatility. This lends to investors diversifying their portfolios through foreign investments. But the state of other economies poses difficult questions when it comes to this option.
U.S. Economy Poised to Strengthen
Latest domestic economic reports have been positive in nature, indicating a wider recovery is in progress. The Consumer Confidence Index increased to 95.4 in May from 94.3 in April. Core capital-goods orders, which don’t include the unpredictable defense and transportation sectors gained 1% in April following a revised 1.5% increase in March.
Further, sales of new single-family houses gained 6.8% in April to 517,000. Meanwhile, construction on new homes climbed at the fastest pace in April since late 2007, banking on rise in single-family housing starts.
Additionally, Fed minutes showed officials looked past a June rate hike amid slow economic growth in the first quarter. However, Federal Reserve Chairwoman Janet Yellen said the central bank may raise interest rates this year as she believes soft economic data will not have a lasting effect on the economy. Yellen said dismal growth during the early part of the year was likely an outcome of harsh winter weather, which may only have a temporary impact.
High Market Volatility
However, in the midst of such positive trends, markets continue to remain volatile. The CBOE Volatility Index gained 9.2% in January followed by a significant 36.4% downtrend in February. Again in March, the VIX jumped 14.6% but was followed by a 4.8% decline in April. So far in May, the VIX is down 8.5%. (Read: 3 Low-Beta Momentum Stocks to Brave Volatility)
Given these volatile trend in the U.S. markets, investors look forward to invest in overseas markets. However, global economic conditions also continue to remain discouraging. Neighboring Canada’s second quarter growth was projected by its central bank to be at 2.8%. However, renowned economist David Madani termed it as “pure fantasy.”
China’s Manufacturing Dips
Chinese manufacturing sector contracted for the third straight month in May as output fell at the fastest pace in a year. The HSBC flash Purchasing Managers’ Index came in at 49.1, less than the expected figure of 49.3. Decline in China’s factory activity added to the views that the People’s Bank of China needs to roll out aggressive stimulus measures to curtail a sharper slowdown. Analysts believe China’s economy to slow below the 7% growth rate achieved in the first quarter.
Unlike China, positive GDP numbers from Japan delivered a welcome surprise. During the first three months of this year Japan’s economy expanded by 2.4%, which exceeded economists’ estimates of 1.5%. However, subdued input and output prices in May indicated that inflation still remains low, which eventually will compel the Bank of Japan to expand its monetary stimulus program.
Separately, Russia’s growth may contract by 2.8% this year, but is expected to grow by at least 2.3% in 2016 to 2018.
Eurozone Business Weaker
Eurozone manufacturing and service sectors continued to lose momentum for the second month in a row in May. The Markit’s composite flash Purchasing Managers’ Index dropped to 53.4 in May from 53.9 in April. The weaker-than-expected Eurozone’s business growth came in; just two months after the European Central Bank (ECB) announced a 1 trillion euro ($1.1 trillion) stimulus plan.
Meanwhile, concerns about Greece’s debt crisis had a negative impact on European markets. Greece is supposed to make a debt payment of 300 million euros to the International Monetary Fund on Jun 5. Eurogroup members and Greek officials have started preparing a draft to avoid defaulting on the debt payment that Greece is supposed to make within the stipulated time frame.
Separately, United Kingdom Markit Manufacturing PMI was at 51.9 in April, less than analysts’ forecast of 54.6. Further, UK’s economy grew at 0.3% in the first quarter of 2015, a sharp decline from 0.6% in the first quarter of last year.
3 Dividend-Paying ADRs to Buy
Volatility persists in equity markets and global economic uncertainties also continue to exist. Therefore, it may be a prudent idea to invest in dividend-paying ADRs for continued income. These foreign stocks trading in U.S. stock exchanges will provide a bulwark against global economic uncertainties and strengthen income.
Below we present three high-dividend ADRs that boast a Zacks Rank #1 (Strong Buy) or of Zacks Rank #2 (Buy) or better, Value Score of ‘A,’ dividend yield of 5% or more and market capitalization over $1 billion.
BP p.l.c. BP is one of the world’s largest petroleum and petrochemicals groups. BP has well-established operations in Europe, North and South America, Australasia and Africa. The company is headquartered in London, the United Kingdom.
This Zacks Rank #2 (Buy) company has a Value Style Score of ‘A.’ The company offers a promising dividend yield of 5.7%. The stock has gained 9% year to date.
Mobile Telesystems OJSC MBT provides telecommunication services in Russia and the Commonwealth of Independent States. The company is headquartered in Moscow, the Russian Federation.
This Zacks Rank #1 (Strong Buy) company has a Value Style Score of ‘A.’ The company offers a robust dividend yield of 9.67%. The stock has gained 54% year to date.
SSE plc SSEZY is engaged in the generation, transmission, distribution and supply of electricity in the United Kingdom and Ireland. The company is based in Perth, U.K.
This Zacks Rank #1 (Strong Buy) company has a Value Style Score of ‘A.’ The company offers a promising dividend yield of 5.25%. The stock has gained 1.8% year to date.
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