A Five-Star Foreign Dividend Payer

Even though U.S. blue chips like Pfizer (NYSE: PFE  ) and Coca-Cola (NYSE: KO  ) have helped investors accumulate fortunes in the past, the temptation to look abroad for the world's best dividend stocks remains strong.

For one, there are many foreign stocks that offer higher dividend yields than their U.S. counterparts. For example, U.K. beverage conglomerate Diageo (NYSE: DEO  ) currently doles out 4.1% versus Kentucky-based Brown Forman's (NYSE: BF-B  ) 2.1%.

Not all created equal
Despite the tremendous opportunities available to generate income from overseas companies, stateside investors should be aware of a couple of things before stamping their passports:

  1. Dividend regularity. Or lack thereof. Foreign-company dividends may be larger, but they're often less regular in timing and amount. Companies abroad like to pay out a target percentage of earnings instead of a certain "dollar" value every year. Don't knock it: Freed from the pressure to lowball their payouts, these companies can pay you more over the long haul.
  2. Dividend taxation. Foreign countries (the countries of the U.K. are an exception) will scalp your scratch by their going rate. Still, most countries you're likely to invest in have tax treaties with the United States, meaning you can claim a credit for the tax withheld. Here's the rub: Because a credit offsets taxes you would have otherwise paid, it's smart to hold foreign stocks in a taxable account. In other words, skip the IRA if you're going abroad.

Of course, not all foreign dividend stocks are created equal. So each week, we'll highlight a five-star foreign dividend payer with the assistance of the 83,000 investors participating in Motley Fool CAPS, the Fool's free investing community. After all, having a second (or three-hundredth!) pair of eyes can help you separate the wheat from the chaff.

A lever long enough?
U.S. consumers should be familiar with U.K.-based food and consumer goods multinational Unilever (NYSE: UL  ) , with its well-known food brands like Ben & Jerry's ice cream and Bertolli pasta. If you're unfamiliar with Unilever's stock, maybe it's time you get acquainted.

Over the past 20 years, Unilever has generated 13.1% annualized returns, and it has paid a dividend to shareholders for 71 consecutive years. But that's all in the past.

For an opinion of how Unilever will perform going forward, here's a bullish pitch from CAPS player xthecritic:

This is a sector play. Consumer staples have performed well since the instability hit in August and will continue to outperform in the next 12-18 months. Unilever is a great company and has [a] full stable of staple products. Safety plays are easy money right now.

On the other hand, Unilever bear fewl10 isn't so sure that the stock is "easy money" and calls into question its current valuation.

Um, investors haven't panicked yet. This is just the tip of the iceberg. When they do, this will fall to a normal PE, not 27.

CAPS investors tend to agree with xthecritic's bullish opinion: of 347 investors who have rated the stocks, 336 think Unilever will outperform the market going forward.

In this Fool's opinion, Unilever deserves a spot on your watch list following the stock's recent 14% decline from its December highs. Not only does the stock currently yield 3%, but it has solid exposure to key emerging markets like India and China and their growing middle classes.

What do you think about Unilever, or any stock for that matter? Make your voice heard on Motley Fool CAPS today. 


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 564910, ~/Articles/ArticleHandler.aspx, 10/2/2014 12:57:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement