Even though U.S. blue chips such as Bristol-Myers Squibb (NYSE: BMY) have helped investors accumulate fortunes, the temptation to look abroad for the world's best dividend stocks is strong.
Many foreign stocks offer higher dividend yields than their U.S. counterparts. For example, the U.K.'s BP (NYSE: BP) doles out a gracious 5.1% dividend, versus U.S.-based Chevron (NYSE: CVX), which pays 2.7%.
Not all created equal
Despite the tremendous opportunities available to generate income from companies abroad, stateside investors need to know a couple of things before stamping their passports:
- Dividend regularity -- or lack thereof. Foreign company dividends can be larger than U.S. companies', but they're often less regular in timing and amount. Companies abroad like to pay a target percentage of earnings, instead of a certain cash 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.
- Dividend taxation. Foreign countries (except for those in the U.K.) can scalp you at their going rate. Still, most countries in which you're likely to invest have tax treaties with the United States, so you can claim a credit for the tax withheld. But 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.
Of course, not all foreign dividend stocks are created equal. So each week, we highlight a five-star foreign dividend payer with the assistance of the 86,000 investors participating in Motley Fool CAPS, the Fool's free investing community. After all, having a second (or 300th!) pair of eyes can help you separate the wheat from the chaff.
St. Patrick's stock
With St. Patrick's Day less than a week away, let's take a trip to the Emerald Isle and look more closely at Irish cement and construction materials company, CRH plc (NYSE: CRH).
Historically, CRH has tied its fate to the European and U.S. construction markets, and, as a result, has been adversely affected by the recent slowdown in the U.S. -- its share price has fallen 28% since last July.
It hasn't been the only one of its peers to suffer from a slower U.S. construction market, however, as competitors such as Cemex (NYSE: CX) and Eagle Materials (NYSE: EXP), with large U.S. interests themselves, have also been slapped around by the market since last summer.
CRH plans to expand its geographic reach and tap into infrastructure growth in the emerging markets. In January, for instance, the company announced a 26% stake in China's Yatai Cement with the option of increasing its stake to 49% after four years.
On the dividend front, the stock yields 2.8%, and shows signs of continued growth and sustainability. According to CRH's 2007 earnings report, dividends per share increased 31%, marking 24 consecutive years of dividend increases for the company. More importantly, common dividend payments represented only 19% of free cash flow, which leaves CRH with plenty of cash to reinvest in the company's operations or to pay down debt.
How will CRH perform going forward? CAPS investors are overwhelmingly bullish on the shares, with 97 of the 100 players who have rated the stock believing it will outperform the S&P 500. Most bulls tend to concur with player elrap's recent investment thesis:
Well diversified. Well managed. Good yield. Low p/e. A natural & proven growth record. Strong balance sheet. All the ingredients of an anchor stock. Now on sale.
In this Fool's opinion, investors should approach CRH with a wee bit o' caution. The fact is that the company relies heavily on developed markets where, lately, construction activity has been slow. Any outsized earnings growth over the next few years will need to come from its emerging markets acquisitions, which the company is still working to integrate into its current business model. CRH certainly has enough cash on hand to make good acquisitions, so investors should keep a close eye on the regions served by the companies it plans to buy.
What do you think about CRH -- or any stock, for that matter? Make your voice heard on Motley Fool CAPS today.
