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Published: December 28, 2009
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 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).
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: RE) -- 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.
-- Carla Pasternak
Editor
High-Yield Investing
High-Yield International
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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