I’m thinking of a Latin American bank that truly stands apart. Unlike, say, Citigroup or Bank of America, this bank doesn’t offer loans or checking accounts to the general public. It doesn’t receive deposits from the public, either. Instead, it finances trade in Latin America, mainly by funding the sale of commodities and agricultural products to Asia.
This is a great business to be in, because the rise of the Asian consumer means more demand for Latin America’s commodities. Latin America has what Asia needs—from Chilean copper to Brazilian coffee to Argentine soybeans. And the bank I’m talking about makes trade between the two regions possible.
This company has branches in Panama, Argentina, Mexico, Brazil, Peru, and the U.S. This is another reason to like this stock. Mexico, Brazil, and Peru are three markets with strong growth potential. Even Argentina—dogged right now by inept government—has good prospects over the long run.
Trade finance is vital if goods are to be shipped from one country to another. That’s because exporters need importers to pay in advance. Typically, the importer’s bank will provide a letter of credit to the exporter. This guarantees payment once the exporter can provide documentary proof (such as a bill of lading) that a shipment is on its way. On the basis of this letter of credit, the exporter’s bank can then provide credit to the exporter.
This bank charges for each transaction. So, the more trade there is, the more revenues it brings in. This is good news: Because not only is demand from Asia growing, but also the Panamanian government has promised to double the capacity of the Panama Canal by 2014. This will give an extra boost to commodity exports from Latin America to Asia by allowing more cargo volume through the canal.
Another benefit of adding this company’s shares to your portfolio is its attractive dividend yield of more than 5%. I’ve cautioned before that you need to be careful when buying stocks with dividend yields of over 5%. You want to look for a history of consistently rising dividend payments. In this case, there is a rising trend in dividend payments going back more than three years.
A mere three years of a rising dividend wouldn’t usually be enough to interest me—but in this case, the bank’s record of rewarding shareholders goes beyond dividend payments. Over the 10 years to the end of third quarter 2012, it has returned an average of 33% a year. Put another way, if you had invested $10,000 in its shares at the end of September 2002, you would have turned that into $139,994.14 by the end of September 2012.
Bank stocks aren’t on most people’s radars right now. But this isn’t your ordinary bank.
Editor’s note: Today we are seeing a greater erosion of financial freedom than ever before. Taxes are rising…the value of the dollar is falling…and the government is prying more and more into citizens’ private finances.
Don’t watch your income and savings drain away. There is a way out…if you act in time. Start planning your nest-egg strategy—before it’s too late.