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Look Abroad at These 7 Dividend Giants

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Millions of investors have turned to dividend stocks to try to salvage some income from their portfolios. But because many investors choose stocks that pay strong dividends because of their safety and reliability, going outside the U.S. stock markets to find them -- and having to face the perceived risks of international stocks -- doesn't always occur to them.

But increasingly, companies around the world have discovered what many U.S. companies have known for decades: Making healthy payouts to shareholders is one of the most attractive traits a company can have for potential investors. Below, I'll talk about some strong dividend-paying stocks that were good enough to make the grade for inclusion in a popular international dividend ETF. But first, let's take a closer look at international dividend stocks and why they fly under the radar of many investors.

Afraid to leave home
Not so long ago, most investors saw dividend stocks as being stuck in a boring backwater of the market. Dividend-rich sectors like utilities had a reputation as "widows and orphans" stocks that lacked the growth prospects that were more popular among investing circles. During the bull market of the 1980s and 1990s, earning a 2% yield simply didn't look all that good compared with the double-digit percentage returns that many growth stocks produced year in and year out.

Over the past decade, though, that trend has come to a screeching halt as stocks have suffered two major bear markets and produced subpar returns. In this environment, dividend yields have actually increased as share prices have fallen. To avoid big hits in a market downturn, the conservative perception of dividend stocks matches well with investors' desire to preserve capital over seeking huge yet risky growth.

But because that conservative perception has persisted through both bull and bear markets, the investors who seek out dividend stocks tend not to be big risk-takers. They want dependable income and are often willing to sacrifice red-hot growth prospects to get it. As a result, venturing into the choppy waters of international markets -- and the associated geopolitical, currency, and global economic risks that come with investing in them -- isn't something conservative dividend investors necessarily feel comfortable with.

Finding international dividend stocks the easy way
One of the biggest challenges investors face in considering foreign dividend stocks is getting the information they need to make an informed investing decision. Some of the best dividend stocks in the U.S. are household names that dominate American society. But equally promising dividend stocks in other countries may represent companies that the vast majority of people in the U.S. have never heard of.

To help uncover some good prospects, one great method is to look at the holdings of popular exchange-traded funds. In this case, the iShares DJ International Select Dividend ETF (IDV) uses a methodology that balances maximizing dividend yield with making sure that companies show signs of having a healthy business that will allow them to sustain those high yields well into the future. Here are the seven stocks whose shares trade on U.S. exchanges that have the largest weighting in the ETF:


Trailing Dividend Yield

Weighting in ETF

Eni (NYSE: E  )



British American Tobacco (AMEX: BTI  )



Royal Dutch Shell (NYSE: RDS-A  )



Telefonica (NYSE: TEF  )



Seadrill (NYSE: SDRL  )



National Grid (NYSE: NGG  )



Bank of Montreal (NYSE: BMO  )



Sources: iShares and Capital IQ, a division of Standard & Poor's.

Now obviously, just because a dividend ETF owns these shares doesn't automatically make them great investments. From tobacco regulation facing BAT and the impact of oil prices on Shell, Eni, and Seadrill to the European crisis and the collateral effects on the worldwide financial system, all of these stocks have some risks -- but they're the same risks that similarly positioned U.S. stocks face.

Give international dividend stocks a chance
Some other complexities, such as foreign dividend taxes, also play an important role in choosing foreign dividend stocks. But going outside the U.S. for income gives you valuable diversification, both in terms of currency exposure and the different economies in which these companies do business.

So even if you're a conservative investor, don't keep all your money close to home when it comes to dividend stocks. Some foreign dividend payers are the best bets for your portfolio.

If you like ETFs as a way to discover great investments, you'll want to know about the best ETFs you can find. Read the Fool's free special report on ETFs to get the names of three great funds, including one international play that capitalizes on emerging markets for big profits.

Fool contributor Dan Caplinger likes dividend stocks wherever he can find them. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Telefonica. Motley Fool newsletter services have recommended buying shares of National Grid. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is good around the world.

Read/Post Comments (3) | Recommend This Article (13)

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.

  • Report this Comment On September 22, 2011, at 6:27 PM, shsherm wrote:

    The RDS/B shares are better than the A shares for American investors since no witholding tax is withheld.

  • Report this Comment On September 23, 2011, at 5:42 AM, mrshastri wrote:

    Yep, RDSB is also good for Canadian Residents.

  • Report this Comment On September 23, 2011, at 11:09 AM, davfoo wrote:

    I checked TEF, the dividend payout ratio is 182% and the debt to equity ratio is 2.95. That is a red flag for me that the dividends may not be sustainable. AT&T (T) seems like a safer bet with a payout ratio of 50% and a much lower debt to equity ratio.

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