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Published: March 1, 2010
If you're like the majority of investors,
I'd bet you have a negative view of stocks trading on the "pink
sheets."
Most people conjure up thoughts of risky penny stocks that are
more gambles than investments. In fact, many brokers provide
warnings to customers before they purchase these stocks, and
some won't even let you buy them.
But there's a change coming in the market, and it's good news
for dividend investors.
In a bid to clean up their act (and their perception among
investors), Pink OTC Markets Inc., who provides the system for
trading pink sheet and over-the-counter stocks, is now slapping
warning signs on some of their stock listings.
These include yield and stop signs to let potential investors
know that the company has limited or no information. There is
even a skull and crossbones for companies that are highly
questionable. The idea is to warn investors to look before they
leap into a company that doesn't provide adequate disclosure.
But the OTC market isn't just for high-risk outcasts that can't
make it to the Big Board. It also boasts a growing list of
world-class foreign companies such as sportswear maker Adidas
(OTC: ADDYY) and chemical company BASF (OTC: BASFY).
To showcase quality firms like these, Pink OTC has given these
stocks their own logo, seen to the right. The new "QX"
designation and platform is a catchy way of setting these
companies apart for their quality and excellence.
The new
OTCQX platform is open to U.S. firms and foreign firms that
are also listed on a major stock exchange in their home country.
But the good news for international investors is 74 of the 93
companies that trade today on this new OTC platform are
high-quality foreign firms.
There's no need to slap a stop sign on these stocks. They may
not follow Sarbanes-Oxley rules or file with the Securities and
Exchange Commission -- they've moved to the OTC market to avoid
these costly and burdensome reporting requirements.
But that doesn't mean their disclosure is
inadequate. In fact, to trade on the new OTCQX, they must post
their financial statements and other documents in English on
their company website. Plus, all major online and full-service
brokers trade the OTCQX market, including: Schwab, E*TRADE,
Scottrade, TD Ameritrade, and Fidelity.
Why does OTCQX matter? It separates the wheat from the chaff,
but it does even more than that. The new OTCQX platform has
sparked fresh demand for the stocks listed on it. According to
Pink OTC data, Canadian companies saw trading volumes nearly
quadruple in the United States and climb +54% on their primary
Toronto stock exchange within three months of listing on the
OTCQX market.
The best news? These firms serve as a fertile hunting ground for
high-yield dividend payers.
If you've been a regular reader of our StreetAuthority site, you
likely know international markets pay higher yields on average
than those in the U.S. For example, the S&P 500 has an average
yield of 2.0%, compared to Germany's 3.7% or the U.K.'s 3.5%.
With the introduction of OTCQX, investors now have a new hunting
ground for
high-yield international stocks. One thing to keep in mind:
Stocks on the OTC are still thinly traded. For example, Tate
& Lyle (OTC: TATYY) -- the maker of Splenda sweetener --
yields an attractive 5.8%, but only about 2,000 shares change
hands daily.
Therefore it's best to use limit orders when making a trade.
That way, you'll be sure to get the price you want.
-- Carla Pasternak
Editor
High-Yield Investing
High-Yield International
Dividend Opportunities |
