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Sky-High Yields From an Island Smaller than Manhattan
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By Carla Pasternak |
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I'm sure a lot of people are looking toward warmer
climates right about now.
As winter starts, I've uncovered one warm-weather paradise that has
more to offer than just sandy beaches and turquoise water. (Full Story Below) |
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Sky-High Yields From an Island Smaller than Manhattan
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Here I sit, bundled up in a turtleneck shirt and bulky
sweater. The trees outside my window have lost their leaves
and my lawn has turned a brownish green. As I look out at
this stark scene, my mind wanders to the warm sunny beaches
of Bermuda, about 1,100 miles off the coast of South
Carolina and worlds away from the approaching winter.
I can't resist checking out a few getaway packages... but
I've discovered something just as enticing as Bermuda's
sunny beaches: its economy.
Bermuda is smaller than Manhattan but enjoys the
third-highest per capita income in the world -- over 50%
higher than that of the United States.
How can that be? Is Bermuda that popular as a tourist
destination?
 A
little more investigation shows there's much more to this
British territory than tourism. That's the island's
second-largest industry. So what's the first?
Bermuda is practically a synonym for "tax-haven." The
country has no income or corporate tax, no capital gains
tax, no sales tax.
Thanks to that favorable tax regime, Bermuda is host to some
1,500 global companies, including the world's top insurers
and shippers. So, besides its beautiful beaches, the banking
and accounting services these firms require are what really
power this place. Financial services, in fact, is Bermuda's
number one industry.
Now, here's where the story gets interesting. I don't really
care about what fuels Bermuda's economy. I do perk up,
though, when I see that some of the global insurers and
shippers that call the island home and require its financial
services can offer me yields of up to 13%!
Plus, the yields are tax-advantaged. You see, the "tax
haven" Bermuda offers isn't just for big businesses. It's
also for the little guy.
Foreign withholding taxes (tax automatically withheld from
many foreign dividends) can chop off as much as 30% from
your dividend income if they're not reclaimed through a tax
deduction. But there's no foreign withholding tax on
Bermudian dividends. The dividend a Bermuda-based company
declares is the dividend you get. No strings attached.
Here's another advantage. The Bermudian dollar is pegged to
the U.S. dollar 1:1. One Bermudian dollar equals one U.S.
dollar. You don't need to worry about the effects of
currency volatility or exchange rates on the value of your
investment income when translated back into U.S. dollars.
So how can you tap into this high-yield, tax-free,
currency-equivalent market?
Unfortunately, Bermuda-exchange listed stocks are hard to
trade for the U.S. investor. I just got off the phone with a
couple of the more popular brokerage firms with global
trading desks, including Schwab and Interactive Brokers.
Schwab tells me they don't do Bermuda. "It's too small a
market for us to develop a relationship with," a Schwab rep
explained. Another rep at Interactive Brokers was a bit more
blunt: "We do not route to Bermuda and won't offer it in the
near future."
Not to worry.
You see, many of the highest-yielding global leaders are
headquartered in Bermuda but listed right here in the United
States.
The roster includes high-yield shippers like Nordic
American Tanker (NYSE: NAT, 7.7% trailing yield).
But there's more than just shippers. You can also access the
high-yield/investment-grade preferred stocks of
Bermuda-based insurers like XL Capital (NYSE: XL) or
RenaissanceRe (NYSE: RNR) -- all without leaving the
familiarity of the U.S. markets.
High-yield Bermudian plays like these might just make the
winter a little more tolerable.
Happy Holidays!
Carla Pasternak's Dividend Opportunities
P.S. -- In my December issue of
High-Yield
International, I offered my subscribers seven potential
income plays from Bermuda. My highest-yielding pick came
from a financial services company that pays nearly 13%.
To see my full listing of Bermudian income plays, simply
subscribe
here. You'll also have access to every back issue
we've ever published, plus monthly issues of
High-Yield
International.
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Notes
Only one consumer staples stock in the S&P 500 -- grocery
retailer Supervalu (NYSE: SVU) -- has cut its dividend, while 33
of 34 actually increased payouts, S&P's Howard Silverblatt
notes. As a result, consumer staples is the only sector to offer
investors a positive total return (including price appreciation
and dividend payments) since the market peak of 2007.
-- BusinessWeek
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