Even though U.S. blue chips such as Clorox (NYSE: CLX) 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 do. For example, U.K. hotelier InterContinental Hotels Group (operator of the Holiday Inn and Crowne Plaza chains) doles out a 3.8% forward dividend, versus U.S.-based Marriott International's (NYSE: MAR) 0.9%.

Not all dividend stocks are created equal
Despite the tremendous opportunities available to generate income from companies abroad, stateside investors should know two things before stamping their passports:

  • Dividend regularity -- or lack thereof. Foreign companies' 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 96,000 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.

No, not Stan Mikita ...
Old Chicago Blackhawk fans may perk up when they hear this name, but this Makita (Nasdaq: MKTAY) has nothing to do with hockey. In fact, this Makita is the $4.4 billion Japanese global manufacturer of power tools and small household appliances.

Don't be surprised if you've never heard of Makita -- only about 3,000 shares are traded each day on the Nasdaq, and there is little analyst coverage. Unfortunately, it has also largely flown under our Foolish radar. With the exception of one boy wonder investor -- known as pencils2 here in Fooldom -- not much has been written about the stock on Fool.com. But darn it, that needs to change.

Why, you ask? When you stack Makita up against its major competitors, you could say it's a "cut" above the rest:

Makita

Black & Decker (NYSE: BDK)

Snap-on (NYSE: SNA)

Cash Per Share* (Yesterday's Close)

$6.03 ($30.81)

$4.05
($66.28)

$1.62
($51.07)

% Sales Outside
North America

82%

35%

43%

Long-Term Debt

$8.3 million

$1.18 billion

$502 million

Operating Margin

19.4%

9.2%

12.1%

Data provided by Capital IQ, a division of Standard & Poor's.
*From last available balance sheet and total shares outstanding as of the date of the balance sheet.

What's more, Makita generated more than $156 million in free cash flow in 2007, and increased sales by 26% and net income by 52%, despite a stronger yen and a housing slowdown. It's also run by well-tenured management -- the CEO and CFO have been with the company for 37 and 39 years, respectively.

On the dividend front, Makita offers a solid yield of 2.36%, and the company's dividend policy is to maintain a "payout ratio of at least 30% of net income, with a minimum amount for annual total dividends at 18 yen per share."

OK, but is it the right time to buy? The small pocket of CAPS investors who follow Makita sure seem to think so, with 128 of 133 players who have rated the stock believing it will outperform the S&P 500. One such player is the aforementioned pencils2, who forecast great things for Makita back in May 2006:

A great, underfollowed company that makes great tools, is expanding into nearly every country, is doing everything it needs to do to keep up nice growth and expansion, and to top it off it is headquartered in Japan, a fast-growing country and economy.

Luckily for those of us who are new to the stock, Makita sits 40% off its 52-week high and has been beaten up much worse over the past year than competitors like Black & Decker, Stanley Works (NYSE: SWK), and Snap-on. For a company with a great balance sheet, a long history of increasing shareholder value, and dedicated management, that's just not right. Do yourself a favor and take a closer look at Makita

What do you think about Makita -- or any stock, for that matter? Make your voice heard on Motley Fool CAPS today.

Intercontinental Hotels Group is a Motley Fool Global Gains recommendation and Snap-on is an Income Investor pick -- a free 30-day trial to either service is yours for the asking.

Fool contributor Todd Wenning will take on anyone in NHL 1994 for Sega Genesis. He does not own shares of any company mentioned. The Fool's disclosure policy once had to fill a brandy glass with brown M&Ms, or Ozzy wouldn't go on stage that night.