After "How big is the yield?" the second question you should ask as an income investor is "How safe is the yield?" Whether you rely on the distributions to pay the bills or reinvest them to boost your returns, you want to know that your investments will continue to pay for years to come. This is why you should look for companies protected by wide economic moats with low payout ratios. These two factors will go a long way toward helping you build a rock-solid dividend portfolio, but I suggest you also look for high yielders with significant international exposure.
Why go global?
From a dividend perspective, the biggest advantage of looking for companies with international exposure is that global diversity helps the company generate the consistent cash flows necessary to maintain -- and ideally increase -- its dividend. For example, look at Philip Morris International (NYSE: PM ) , which pays a 3.9% dividend. In the most recent quarter, total cigarette shipment volumes in the European Union dropped 3.5% year over year while shipments in Latin America declined 1.1%. However, shipment volumes increased 12.6% in Asia and 5.1% in Eastern Europe, the Middle East, and Africa, leading to a total shipment volume increase of 4.5%. This translated to a 26.4% increase in revenue -- or 15.9% excluding currency -- while net earnings increased 30.5%.
Another advantage of global companies is the potential for growth in emerging markets. Consider Yum! Brands (NYSE: YUM ) , which pays a dividend of 1.9%. While I wouldn't expect to see stellar growth from its flagship brands -- Taco Bell, Pizza Hut, and KFC -- here in the U.S., it's a different story overseas. The company has opened more than 4,000 locations in China and hopes to eventually increase that number to 20,000. Meanwhile, Yum Restaurants International, which handles the company's locations outside of the U.S. and China, opened 193 new locations during the third quarter of 2011 and expected to have opened 900 new locations during the course of the year.
Time to break out the passport
Philip Morris and Yum! Brands both hold positions in my portfolio, but I'm always on the lookout for dividend-paying stocks with similar international exposure. Here are three such stocks from my watchlist.
Vodafone (NYSE: VOD ) , which pays a dividend of 3.5%, not counting a special dividend, is the world's largest mobile phone operator. While investors may associate the company primarily with Europe, its reach actually spans the globe. Thanks to this, the company can offer stability like that of Philip Morris in addition to impressive growth from emerging markets such as Turkey, India, and Africa.
If you're looking to add a tech dividend to your portfolio, Intel's (Nasdaq: INTC ) 3.3% yield probably isn't a bad choice. From the domestic standpoint, the company isn't all that exciting. The PC market has matured, leading to less-than-inspiring sales. Moreover, the company faces increasing competition from ARM Holdings. However, I think the billions of dollars Intel spends on research and development will help the company maintain its market dominance. As for growth, it still has plenty of opportunities in emerging markets and even if those markets wind up skipping over PCs in favor of mobile devices, the company can benefit from the infrastructure build-out required to support those devices.
For those of you looking for a good sin stock, but who have qualms about investing in tobacco, there's global booze maker Diageo (NYSE: DEO ) . The company pays 3.4% and boasts an impressive portfolio of well-known beer and liquor brands including Smirnoff, Guinness, and Captain Morgan. Its distribution network spans 180 countries. The team over at Motley Fool Income Investor thinks the stock is a little pricey at the moment, so I'd keep this one on your watchlist for now and wait for a more attractive price.
These are just a handful of the opportunities awaiting investors willing to take a more global view. If you'd like to learn about two more stocks prepared to profit in emerging markets and read more about Yum! Brands, then check out this special report "3 American Companies Set to Dominate the World." It's absolutely free, so click here to download it today.