The Morgan Stanley Capital International index of Asian stocks outside Japan shows a 3% gain since the end of August 2001–not too shabby next to the 23% drop for the S&P 500.

Switch up the time parameters, however, and the picture changes substantially. Over a ten-year horizon, the S&P 500 has appreciated 110% (excluding dividends), while that same Morgan Stanley Capital International index has risen just 15%. Throw Japan into the mix, and Asian equities show a 21% decline.

The discrepancy could explain why some Asian stocks still look like bargains relative to their U.S. counterparts. Take KT, a South Korean provider of fixed-line, wireless and other telecom services. The stock, available to U.S. investors as an American Depositary Receipt (ADR), currently trades at 0.9 times sales. Contrast that with BellSouth and SBC Communications which carry price-to-sales multiples of 1.7 and 1.9, respectively.

At 13, KT’s latest 12-month price-to-earnings ratio also looks reasonable relative to a five-year average multiple of 20. BellSouth sells for 18 times its trailing profits per share.

To be sure, comparing multiples across the Pacific may be of limited use. “[Asian] markets have a history of higher volatility, and the companies are smaller,” says Subodh Kumar, chief investment strategist with CIBC World Markets, a Toronto-based investment bank. “Maybe valuations should be lower.”

But Kumar is no bear on Asia. Instead, he prefers to focus on the growth aspects of investing in the region. Even with a slowdown in exports to the U.S. and Europe, he suggests, Asian countries will benefit from rising consumer demand within their own borders, as well as the surging economies of China and India.

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You can’t trust earnings anymore. So what should you look for? Dividends. They are harder to fake. We went hunting for stocks with solid cash dividends but didn’t do the obvious thing: Rank all stocks by yield and select the highest. If you simply want the highest yields, go for real estate investment trusts (see p. 126). Or take a chance on tobacco. On page 140 David Dreman makes the case for Philip Morris, which yields 4.7%.

The list below features dividend stars of a different sort. Their yields are only so-so, averaging 2% or so, but their dividends are well covered and rising. The percentage of earnings being paid out is small. Only a deep and prolonged earnings contraction would force these outfits to shrink their payouts. These companies have been raising dividends recently (three-year growth of 3% or better). They also all have good balance sheets: debt less than 50% of total capital and interest coverage (earnings before interest and taxes, divided by interest) greater than 1.5.

Headquartered in Menasha, Wis., Banta Corp. prints everything from Bibles to software manuals. Banta earned $50 million last year on revenue of $1.5 billion and distributed $15 million of that to shareholders. Banta’s free cash flow, in the sense of net income plus depreciation minus capital expenditures, has been positive for the past ten years.Michael Friedman, equity analyst with New York brokerage Sidoti & Co., notes that the company has recently trimmed capital expenditures in light of the economy’s downturn. Shareholder payouts first, expansion second.

Contrast Banta with a stock such as Bristol-Myers Squibb, which now yields a robust 4.8%. Using the consensus mean estimate for 2003 EPS, Bristol-Myers shows a payout of 69%. Switch to the most pessimistic profit projection for next year, and the expected payout climbs to 78%–not exactly reassuring.

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