Dividend stocks have helped millions of investors earn healthy income and beat the market over the long haul. But if you think you can only get the best dividend stocks by staying close to home, think again. Some of the most promising dividend stocks you'll ever find are foreign companies, and if you dismiss them out of hand, your portfolio could suffer.
The international language of money
All around the world, stock investors want the same things from their investments. They want share prices to rise over time, and they want to receive cash in the form of dividends to supplement their income. It doesn't matter whether a company's located in New Jersey or New Zealand; as long as a stock delivers the goods, profit-hungry investors should be happy with the results.
One of the biggest challenges, though, is finding out about foreign dividend payers. After all, the U.S. companies that pay healthy dividends are largely well-known household names with long histories of success. Yet it can be hard for U.S. investors to have the same comfort level with foreign companies, even when they have just as strong a local reputation in their home countries as blue-chip U.S. dividend stocks have close to home.
Let your money travel the world
Many strong foreign dividend-paying stocks don't trade on U.S. exchanges. But several do, including the following:
|
Stock
|
Country
|
Dividend Yield
|
5-Year Annualized Return
|
| Philippine Long Distance (NYSE: PHI ) |
Philippines |
8.6% |
17.5% |
| France Telecom (NYSE: FTE ) |
France |
8.0% |
8.5% |
| SeaDrill (NYSE: SDRL ) |
Norway |
7.2%* |
28.6% |
| BBVA Provida (NYSE: PVD ) |
Chile |
7.1% |
31.6% |
| Telefonica (NYSE: TEF ) |
Spain |
6.9% |
17.2% |
| Portugal Telecom (NYSE: PT ) |
Portugal |
6.5% |
15.6% |
| Companhia Siderurgica Nacional (NYSE: SID ) |
Brazil |
3.4% |
52.3%** |
Sources: Yahoo! Finance; author's calculations. *Projected. **2-year return.
If you're familiar with U.S. dividend stocks, these selections should reveal some common themes. Just as AT&T and Verizon are among the highest-yielding megacap stocks in the S&P 500, so too will you find telecom companies with similar business models in France, Spain, Portugal, and the Philippines among the top yielders worldwide. As with their American counterparts, telecoms around the world all benefit to varying degrees from the combination of stable legacy landline businesses as well as the promise of future growth from the popularity of mobile communication.
But foreign dividend stocks are as diverse as the economies that spawn them. Companhia Siderurgica is a steel giant, basking in the glow of Brazil's expansion and the corresponding infrastructure needs that growth requires, including the upcoming 2014 World Cup and 2016 Olympic Games. Provida, on the other hand, is an asset manager that provides pension services under Chile's national pension system. And Norwegian/Bermudan SeaDrill has made waves as a deep-sea driller with state-of-the-art equipment that puts competitors to the test.
Any of these stocks could make a worthy addition to your portfolio. Their recent returns reflect not only their individual success but also the attention that dividend-paying stocks have received from investors recently.
Hire some help
Alternatively, you can always use exchange-traded funds to get exposure to international dividend payers. If you're interested in focusing on developed countries, then the First Trust DJ Global Select Dividend ETF owns the highest-yielding stocks from around the world that have steadily increased their dividends while maintaining a reasonable payout ratio. Meanwhile, if want to capture the huge growth potential of emerging markets, then the WisdomTree Emerging Markets Equity Income ETF may be more to your taste. It takes the highest-yielding stocks from countries including Brazil, China, Russia, and Taiwan.
Before you go whole-hog into foreign dividend stocks, though, you need to be aware of some complications. Not all foreign companies pay regular quarterly dividends, so check to see if you'll get lumpier payments rather than the stable checks every three months that you're used to getting from U.S. companies. In addition, foreign dividend stocks present special tax concerns, so you'll want to understand the impact of U.S. and foreign tax law on your investment.
The best you can find
Broadening your dividend-seeking horizons to look abroad may take a little more work, but it can have a big effect on your investing results. Whether you buy individual stocks or use an ETF, foreign dividend payers are worth the extra effort.
Get the dividends you need. The Fool's free special report, "13 High-Yielding Stocks to Buy Today," will point you in the right direction.
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