I won't deny it: There are still some good opportunities for yield-starved investors among well-known U.S. blue chips.
However, if you're not also considering non-U.S. dividend payers, you're turning your back on opportunity. Why? Valuation, for one. Despite the first-quarter rally in risk assets, many European and emerging markets remain far below their pre-crisis highs -- that's no longer the case with U.S. stocks.
Below, I highlight the shares of five foreign companies -- shares you can buy directly on the NYSE -- that pay a yield well in excess of that on the S&P 500.
What to look for
These are just three of the major criteria I considered in selecting these shares:
- Dividend yield above 3%.
- The company is not excessively dependent on its domestic market.
- The company has a reasonably dependable long-term growth outlook and opportunities (though it could certainly face a challenging operating environment in the near term).
The following table contains five large-cap companies with ADRs (American depositary receipts) traded on the New York Stock Exchange. I don't have the space to make an investment case for all five, but I'll go into some detail regarding why I find two of them attractive.
Home Country / Industry
||France / Pharmaceuticals||4.7%|
||Ireland / Construction Materials||4.8%|
||Switzerland / Heavy Electrical Equipment||3.4%|
Companhia Siderurgica Nacional
||Brazil / Steel||8.4%|
||Switzerland /Diversified Capital Markets||3.1%|
Source: S&P Capital IQ, author's calculations.
ABB is a Switzerland-headquartered company that has long operated internationally. ABB's divisions are split across two markets: The power market and the industrial automation market (think factory control systems, for example).
Japan's Tohoku earthquake and tsunami did nothing good for the nuclear industry. However, the fact remains that the demand for electrification in emerging markets including India and China will not decline anytime soon. ABB is well-positioned to grab its share of that growth: For example, ABB India already boasts 8,000 employees (more than 1,000 of whom are engineers), 14 manufacturing facilities, and 23 marketing offices. Asia represented 30% of ABB's orders in 2011.
Note that over the 10-year period ended last month, ABB ADRs produced an annualized total return of 9.5%, smashing the S&P 500 TR index, which managed only 4.1% (admittedly, part of the outperformance was due to a currency tailwind -- the Swiss franc-denominated shares traded in Zurich produced an annualized return of 6.6%). That comparison, however, is less useful than one within ABB's own history: On the basis of the P/E and enterprise value-to-EBITDA ratios, ABB shares are only marginally more expensive today than they were 10 years ago (the premium is less than 10%).
Credit Suisse is Switzerland's second-largest bank, behind UBS. It's a universal bank that operates in retail and private banking, asset management, and investment banking.
Investors are understandably skittish about putting money at risk in European bank shares at a time when eurozone sovereign debt remains a live threat. It's worth emphasizing, though, that Switzerland is not a member of the eurozone (or even the European Union, for that matter) and that the Swiss franc is, in fact, considered a safe-haven currency.
On that note, Bloomberg reported last week that the top 10 U.S. money market funds have tripled their holdings of Swiss bank debt since 2010. During the month of March alone, the total rose 29%; meanwhile, holdings of German bank debt fell 30% -- despite the fact that Germany is regarded as the safest sovereign credit within the Eurozone.
In the U.S., Swiss banks' reputation has been sullied by the U.S. government's case against them for facilitating tax evasion. Worldwide, however, Switzerland's reputation as a discrete and stable haven for wealth remains largely untarnished, particularly in Asia, the region that is producing high-net worth individuals faster than any other.
Buying Credit Suisse's stock at a 14% discount to its book value in order to receive a 3.1% cash dividend return -- in an environment of negative real interest rates, that is an eminently honest proposition. Your odds of earning better than a 3% annual total return after inflation on the shares are excellent, assuming you are an investor, not a trader (see the caveat below). In fact, I think they are much better than the odds of an S&P 500 index achieving the same result.
My next step... and yours
One caveat: All of these stocks, with the possible exception of Sanofi, are sensitive to the business cycle. If you cannot tolerate the stock volatility associated with that dependency, or if your time horizon is shorter than the length of the business cycle, you shouldn't own them.
If you're looking for even more dividend stock ideas, check out The Motley Fool's special report "Secure Your Future With 9 Rock-Solid Dividend Stocks."