Please ensure Javascript is enabled for purposes of website accessibility

The World's Best Dividend Stocks

By Todd Wenning – Updated Nov 10, 2016 at 7:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Don't limit yourself to U.S. blue chips.

American blue chips have been the backbone of many investors' portfolios for the past century. In fact, Schering-Plough (NYSE:SGP), Hershey, and General Mills (NYSE:GIS) were three of the best S&P 500 stocks from 1957 to 2003, according to research by Wharton professor Jeremy Siegel. For some, these stocks helped build sizable fortunes.

Though some domestic blue chips have slashed their dividends in recent months, those with strong balance sheets and plenty of free cash flow to support their payouts 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 prizefight 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 six years or so -- it's become clear that the global economy has become more closely integrated than at any other point in history. Today, capital can find its way to just about any country with relative ease, allowing investors to search the globe for the best available returns.

What's more, you're likely to find more companies paying higher dividends abroad. The average dividend yield of the U.K.'s FTSE 100, for example, is near 5% -- a good bit higher than the S&P 500's 3%. Moreover, the NZX 50 index in New Zealand pays twice the S&P with an average dividend yield of about 7%.

It isn't even close
Foreign cash cows have been beating up their American counterparts since 2003, even including recent market volatility. A screen on Capital IQ for companies capitalized at greater than $1 billion, with a current dividend yield exceeding 2%, illustrates the profound disparity quite nicely.

Despite the global market downturn, which in many countries has been far worse than here in the U.S., about 36% (58 of 162) of foreign dividend-paying stocks that trade on a U.S. exchange have more than doubled in the past six years. Included in this group are British American Tobacco (NYSE:BTI) and Turkcell (NYSE:TKC).

On the other hand, only 16% (59 of 372) of U.S. companies that meet these criteria have more than doubled since March 2003. Some of the select stocks on this list include Southern Copper (NYSE:PCU), Public Storage (NYSE:PSA), and Archer Daniels Midland (NYSE:ADM).

Achtung, baby
There are always added risks to consider (politics, currency, etc.) 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 in which you're likely to invest have tax treaties with the United States (Google "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 service, and join us in our quest to find the world's best dividend payers.

The Income Investor service has more than 20 active international recommendations at present, plus a stable of domestic dividend divas. Moreover, the group of picks continues to outperform the S&P 500 while posting an average dividend yield of 7%. You can get your free guest pass through this link.

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

Todd Wenning is split on whether Achtung Baby or The Joshua Tree is the best U2 album. Turkcell is a Motley Fool Global Gains pick. The Fool's disclosure policy pays dividends daily.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Mills, Inc. Stock Quote
General Mills, Inc.
GIS
$79.17 (-1.99%) $-1.61
Archer-Daniels-Midland Company Stock Quote
Archer-Daniels-Midland Company
ADM
$81.65 (-5.13%) $-4.42
Public Storage Stock Quote
Public Storage
PSA
$295.07 (-1.28%) $-3.84
Turkcell Iletisim Hizmetleri A.S. Stock Quote
Turkcell Iletisim Hizmetleri A.S.
TKC
$2.94 (-1.34%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.