These Two Letters Could Be The Secret to High Yields

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. 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.

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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.

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.