American blue chips have been the backbone of many investors' portfolios for the past century. In fact, Altria, Bristol-Myers Squibb (NYSE:BMY), and Pfizer (NYSE:PFE) were three of the best five stocks from 1957 to 2003, according to research by Wharton professor Jeremy Siegel. For some, these very stocks helped build sizable fortunes.

Undoubtedly, domestic dividend payers will continue to play an important role in our portfolios into the 21st century.

But restricting yourself to just American blue chips going forward would be like entering a prize fight with one hand tied behind your back. To capitalize on the benefits of this century's best dividend-paying stocks, you need to look outside our borders.

Stamp your passport
Over the past decade -- especially the past five years -- the growth of the global economy has been remarkable. And the growth is only going to continue as more capital is invested abroad -- not only into emerging markets such as China and India, but also into more developed markets such as Greece and Ireland.

What's more, you're likely to find more companies paying higher dividends overseas. According to Bloomberg, "Dividends for the U.K.'s FTSE 100 index are also two-thirds more than those of the Dow Jones Industrial Average in the United States." Moreover, the NZX 50 index in New Zealand pays an average dividend yield of more than 6%.

It isn't even close
Foreign cash cows have been beating up their American counterparts since 2002. A screen on Capital IQ (a division of Standard & Poor's) for companies capitalized above $1 billion with a current dividend yield greater than 2% illustrates the disparity quite nicely.

Fully 38% (68 of 180) of foreign dividend-paying stocks that trade on a U.S. exchange have more than doubled in the past five years. Included in this group are Petrobras (NYSE:PBR), up 1,248%, and Gerdau (NYSE:GGB), up 778%.

On the other hand, only 18% (87 of 495) of U.S. companies have more than doubled since December 2002. Stocks in this list include SL Green Realty, up 208%, and PPL (NYSE:PPL), up 202%.

Achtung, baby
There are always added risks to consider (political, currency, and so on) before investing abroad, but dividend-minded investors stateside will want to note two things in particular:

  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 U.K. is 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 (search for "IRS publication 901" for the complete list), 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.

Feeling overwhelmed, but don't want to pass up the double benefit of foreign growth potential and dividends? I urge you to consider a free examination of the Motley Fool Income Investor newsletter service and join us in our quest to find the world's best dividend payers.

The Income Investor service has 18 active international recommendations at present, plus a stable of domestic dividend divas. Moreover, it's outpacing the S&P 500 by five percentage points. You can get your free guest pass via this link.

This article was originally published on June 28, 2007. It has been updated.

Fool contributor Todd Wenning is split between Achtung Baby and The Joshua Tree as the best U2 album, but he's currently leaning toward Achtung Baby. He does not own shares of any company mentioned. Petrobras is an Income Investor choice. Pfizer is a Motley Fool Inside Value pick. The Fool's disclosure policy pays dividends on the daily.