One of the most attractive things that investors like about dividend stocks is their dependability. Quarter in and quarter out, most dividend stocks in the U.S. pay the same predictable amount every three months. Occasionally, you'll even get a nice boost to your payout -- and in most cases, you can expect that raise to be permanent.
But if you venture abroad for great dividend stocks, you'll quickly notice something: You often won't get those dependable dividend amounts. Not only can you not depend on dividends staying stable from quarter to quarter; you may not even get a dividend every quarter. If you're not prepared for the way a certain company pays its dividends, you might be in for an unpleasant surprise.
A different point of view
In the U.S., investors looking for strong dividend stocks tend to focus on three things. A stock's dividend yield is the most important factor, telling you what you can expect if you invest in shares today.
But almost as important as yield are two other related factors: dividend history and dividend growth. U.S. investors prefer to see companies that have a long record of never cutting their dividends. Even better, stocks that manage to deliver regular dividend increases to their shareholders enjoy enhanced reputations, especially once streaks of dividend growth pass the quarter-century mark.
In contrast, companies in other countries don't always pursue those same goals. You may find different practices, including the following:
- Payouts based on earnings
If a company's financial performance changes significantly, then the amount it pays in dividends can vary widely from year to year.
- Payouts other than quarterly
You're more likely to see annual, semi-annual, or irregular dividend payments from foreign companies.
In addition, even if a company keeps its dividend stable, currency exchange rates can affect how much those dividends are worth in U.S. dollar terms.
As a result, it's easy to get confused when researching foreign dividend stocks. Quote services that are used to calculating yields based on stable quarterly payouts can seriously misstate the actual dividend yield on foreign stocks with irregular dividend histories. For instance, National Grid (NYSE: NGG ) shows up on Yahoo! Finance with a forward yield of 7.7%, but its trailing yield is a more modest (though still impressive) 6%.
Fortunately, some foreign dividend stocks deliver the dividend growth that U.S. investors want to see. For instance, the International Dividend Achievers index identifies international stocks and ADRs that have increased their annual dividend for five or more consecutive years. They don't all make regular quarterly payments, but they each have demonstrated an ability to keep their overall payouts on the rise -- and with the carnage of the financial crisis firmly within the past five years, that's saying something.
Currently, you'll find a good variety of stocks in the index. Pharma stocks GlaxoSmithKline (NYSE: GSK ) and AstraZeneca (NYSE: AZN ) face the same challenges as their U.S. counterparts in maintaining sales and developing new drugs, but they have attractive yields based on their past successes. Teekay LNG Partners (NYSE: TGP ) has turned transporting crude and other energy products into consistent payouts for shareholders. And just as you do at home, you'll also find telecom stocks well-represented, with Telefonica (NYSE: TEF ) , Philippine Long Distance (NYSE: PHI ) , and Partner Communications (Nasdaq: PTNR ) all making the list.
Make it work for you
Just because foreign dividend stocks don't behave the same way U.S. stocks do doesn't mean you should give up on them entirely. Indeed, foreign stocks often are more attractive dividend payers than U.S. competitors in the same industry. As long as you can stand the unpredictable timing and amounts of cash flow you'll get, then foreign companies with healthy payouts deserve a place in your dividend stock portfolio.
The best dividend portfolio includes stocks from around the world. Check out the Fool's free special report on 13 great dividend stocks and see which stocks you should add to your own holdings.