Dear Mr. Berko: We’re both 73, and like most Americans, we’re starving for yield but scared to reach. Our neighbor told us he just bought 150 shares of Westpac Banking Corp., an Australian company. We could buy 200 shares if you think the stock, including its dividend, is safe. Also, we are told that Iceland’s money market accounts pay 4.25 percent. What do you think of this? Is this real? — DC, Jonesboro, Ark.

Dear DC: Australia and New Zealand have an oligopolistic banking system, and Westpac (WBK-$23) is one of the four major banks operating in these two countries. WBK has a thriving and diversified franchise and a much-envied competitive advantage, as do the other three majors. This dominant oligopoly produces dominant pricing power, near immunity to competition, low-cost but very profitable operations and easily recognized brands with which the public readily identifies. In the past decade, WBK’s share price has moved nicely, from $15 in 2008 to $23 today. Revenues have risen from $12 billion in 2008 to $21 billion today, and net income per share has more than doubled. Meanwhile, the $1.39 dividend has increased modestly for years, yielding a comfy 5.5 percent. Considering the payout of other worldly banks, I’d gladly sit still for 5.5 percent — and the dividend may be increased to $1.50 in 2018.

During the past 18 months, WBK has produced stronger than expected earnings, with net profit margins exceeding those in its peer group, which consists of the Commonwealth Bank of Australia, National Australia Bank and the Australia and New Zealand Banking Group. WBK has better metrics than its competitors, earned by a management team that’s been at the helm for years, superior stewardship and an impressive risk-reward track record. WBK, founded in 1817 with a storefront in Sydney, now has operations spanning the South Pacific, including Fiji, Papua New Guinea and Bali. WBK does everything that the big U.S. banks do; however, it does it with less fanfare, less braggadocio, less paperwork, less regulation and more honesty. It eschews subprime loans, which U.S. banks fervently seek and cherish. And while management at U.S. banks measures profits and revenues quarter to quarter, WBK’s focuses not on next year or 2019 but long term — 10 to 15 years hence.

In the past few years, WBK has generated impressive operating momentum from its core retail banking franchises with excellent cost and income performance metrics. And with solid economic growth in Australia, WBK’s low-risk domestic business model bodes well for the bank’s consistent growth in the foreseeable future. Growing economies of scale, WBK’s enviable dominance of the market, its brawny balance sheet and a rare AA credit rating give management an effective platform for robust growth — today and years into the future.

Since the end of the global financial crisis, WBK has steadily increased its revenues and dividends (including paying two special dividends in 2013), impressively increased return on equity to 16.4 percent, and raised its capital ratio sufficiently to protect its portfolio in case of another financial meltdown. Conservative analysts believe that WBK could trade at the $28-$30 level in the coming 12 months. That wouldn’t be enough to knock your socks off, but it would produce a respectable total return of 24 percent. Perhaps that’s why Morgan Stanley, UBS, the Royal Bank of Canada, Northern Trust, Invesco, Bank of America, Deutsche Bank and Bank of New York own WBK shares. And perhaps you should, too.

Iceland’s money market accounts do pay 4.25 percent. Last year, they paid 5.75 percent. It’s liquid as ice water, and some Americans have taken the plunge. However, you must first convert your U.S. dollars to Icelandic kronur. Today’s rate is about 105 kronur to the U.S. dollar, and there’s the risk. If the krona were to remain at 105 per dollar or if it were to rise in value against the U.S. dollar, an investor would come out smelling like a red Icelandic rose. But if the krona were to fall (and it has), an investor could lose his booties and get frostbite. A trip there is preferable to an investment, and if you visit, try the blood pudding.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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