How to Buy Foreign Market Dividend Stocks
There's nothing better than buying stocks with strong upside and getting paid with cold, hard cash. It's true here in the United States and in foreign markets all around the world. As we showed you in last week's article , buying dividend stocks that deliver a steady and growing income stream is a great way to do just that. But the U.S. isn't the only country with world-beating companies. In fact, adding a few foreign market dividend stocks will diversify your portfolio and help you sleep better at night, no matter what the U.S. market does. Here's what you need to know... To continue reading, please click here...
There's nothing better than buying stocks with strong upside and getting paid with cold, hard cash.
It's true here in the United States and in foreign markets all around the world.
As we showed you in last week's article, buying dividend stocks that deliver a steady and growing income stream is a great way to do just that.
But the U.S. isn't the only country with world-beating companies.
In fact, adding a few foreign market dividend stocks will diversify your portfolio and help you sleep better at night, no matter what the U.S. market does.
Here's what you need to know...
Foreign Market Dividend Stocks Are Bargains Foreign market dividend stocks share many of the same qualities of their U.S. counterparts. For the vast majority, dividends -- not capital gains -- provide the lion's share of returns.
In fact, more than 80% of European returns from 1970-2010 came from a combination of yield and real dividend growth, according to Blackrock Inc. (NYSE: BLK).
What's more, even in high-growth regions like Asia, about 60% of returns over the past 30 years have come from dividends and dividend growth.
And with U.S. investors now barreling into domestic dividend stocks, international stocks offer another benefit-they are cheaper and less competitive.
"With much of the dividend corner of the U.S. equity market - including U.S. utility stocks in particular - now crowded and expensive, investors might want to consider looking abroad for dividend income," BlackRock market strategist Russ Koesterich told Barron's.
Top non-U.S. dividend stocks are currently priced at less than 10 times forward earnings, according to Empirical Research Partners -- the only time that's happened since the early 1990s, except for the 2008 financial crisis.
Foreign stocks are also paying out higher yields than U.S. stocks.
The broad S&P 500 Index currently yields around 2% while markets in Australia, France, and Switzerland are yielding 3% to 5%.
And there's another angle for investors to like - high-growth emerging economies are carrying far less debt than developed countries.
It's a great way to diversify away from the shrinking American dollar and rake in potential currency gains.
What You Need to Know About Foreign Market Dividend Stocks But you should know there are some significant differences between U.S. and international dividend stocks.
The first is that most foreign companies pay out dividends as a fixed percentage of earnings each year.
That means dividends are more likely to be cut in response to short-term fluctuations in profits, whereas U.S. companies are more reluctant to cut dividends if the company has a bad year.
And many international companies also pay dividends only once or twice a year - far less than the monthly or quarterly dividends that Americans have grown accustomed to.
Most importantly, lots of foreign countries impose a withholding tax before sending you the dividend.
Fortunately, most have treaties with the U.S. where you can claim a credit for the tax withheld, but only if you hold these stocks in a taxable account.
Four Ways to Invest in Foreign Dividend Stocks Keeping those factors in mind, there are still plenty of great foreign market dividend stocks that will reward you with high payouts and substantial returns.
Since many high-paying companies are not listed on U.S. exchanges, a good way to minimize risk and get plenty of diversification is to invest in an exchange-traded fund (ETF).
One solid choice is the SPDR S&P International Dividend ETF (NYSEArca: DWX).
This fund has total assets of over $800 million and a below-average expense ratio of 0.44%.
It also sports a juicy yield of 6.49%, which is a nice payoff compared to long-term Treasury bonds. And it's cheap, carrying a forward P/E ratio of only 9.
The fund has broad exposure to various market sectors, with communication services (21%) and utilities (14%) leading the way.
Best of all, the fund has returned nearly 9% year-to-date and over 90% in the last three years.
You can also choose from a bevy of quality individual stocks that trade on U.S. stock exchanges.
Here are three foreign-based corporations which-- in keeping with our criteria-- have increased their dividends for at least five consecutive years and kept their payout ratio (P/R) below 60%.
They include:
BHP Billiton Ltd. (NYSE ADR: BBL): BHP is the world's largest mining company. While BHP's 2.9% yield isn't jaw-dropping, its dividend has grown by 551% over the last 10 years. The company has $16.6 billion in cash and a rock-bottom payout ratio of 21%.
Diageo plc (NYSE: DEO): DEO is one of the world's largest spirits distributing and packaging companies. DEO has increased payments to shareholders every year since 1998. The company has delivered a 5.5% annual increase in earnings per share since 2001, keeping its payout ratio under 50%.
Enbridge Inc. (NYSE: ENB): This Canadian energy company recently announced a 15% dividend increase, the 17th consecutive year of dividend growth. Its 4.26% yield equates to a 38% payout ratio.
The fact is, in today's global economy you can spice up your returns by adding some international flavor. Foreign market dividend stocks are a great place to start.
News & Related Story Links:
As we showed you in last week's article, buying dividend stocks that deliver a steady and growing income stream is a great way to do just that.
But the U.S. isn't the only country with world-beating companies.
In fact, adding a few foreign market dividend stocks will diversify your portfolio and help you sleep better at night, no matter what the U.S. market does.
Here's what you need to know...
Foreign Market Dividend Stocks Are Bargains Foreign market dividend stocks share many of the same qualities of their U.S. counterparts. For the vast majority, dividends -- not capital gains -- provide the lion's share of returns.
In fact, more than 80% of European returns from 1970-2010 came from a combination of yield and real dividend growth, according to Blackrock Inc. (NYSE: BLK).
What's more, even in high-growth regions like Asia, about 60% of returns over the past 30 years have come from dividends and dividend growth.
And with U.S. investors now barreling into domestic dividend stocks, international stocks offer another benefit-they are cheaper and less competitive.
"With much of the dividend corner of the U.S. equity market - including U.S. utility stocks in particular - now crowded and expensive, investors might want to consider looking abroad for dividend income," BlackRock market strategist Russ Koesterich told Barron's.
Top non-U.S. dividend stocks are currently priced at less than 10 times forward earnings, according to Empirical Research Partners -- the only time that's happened since the early 1990s, except for the 2008 financial crisis.
Foreign stocks are also paying out higher yields than U.S. stocks.
The broad S&P 500 Index currently yields around 2% while markets in Australia, France, and Switzerland are yielding 3% to 5%.
And there's another angle for investors to like - high-growth emerging economies are carrying far less debt than developed countries.
It's a great way to diversify away from the shrinking American dollar and rake in potential currency gains.
What You Need to Know About Foreign Market Dividend Stocks But you should know there are some significant differences between U.S. and international dividend stocks.
The first is that most foreign companies pay out dividends as a fixed percentage of earnings each year.
That means dividends are more likely to be cut in response to short-term fluctuations in profits, whereas U.S. companies are more reluctant to cut dividends if the company has a bad year.
And many international companies also pay dividends only once or twice a year - far less than the monthly or quarterly dividends that Americans have grown accustomed to.
Most importantly, lots of foreign countries impose a withholding tax before sending you the dividend.
Fortunately, most have treaties with the U.S. where you can claim a credit for the tax withheld, but only if you hold these stocks in a taxable account.
Four Ways to Invest in Foreign Dividend Stocks Keeping those factors in mind, there are still plenty of great foreign market dividend stocks that will reward you with high payouts and substantial returns.
Since many high-paying companies are not listed on U.S. exchanges, a good way to minimize risk and get plenty of diversification is to invest in an exchange-traded fund (ETF).
One solid choice is the SPDR S&P International Dividend ETF (NYSEArca: DWX).
This fund has total assets of over $800 million and a below-average expense ratio of 0.44%.
It also sports a juicy yield of 6.49%, which is a nice payoff compared to long-term Treasury bonds. And it's cheap, carrying a forward P/E ratio of only 9.
The fund has broad exposure to various market sectors, with communication services (21%) and utilities (14%) leading the way.
Best of all, the fund has returned nearly 9% year-to-date and over 90% in the last three years.
You can also choose from a bevy of quality individual stocks that trade on U.S. stock exchanges.
Here are three foreign-based corporations which-- in keeping with our criteria-- have increased their dividends for at least five consecutive years and kept their payout ratio (P/R) below 60%.
They include:
BHP Billiton Ltd. (NYSE ADR: BBL): BHP is the world's largest mining company. While BHP's 2.9% yield isn't jaw-dropping, its dividend has grown by 551% over the last 10 years. The company has $16.6 billion in cash and a rock-bottom payout ratio of 21%.
Diageo plc (NYSE: DEO): DEO is one of the world's largest spirits distributing and packaging companies. DEO has increased payments to shareholders every year since 1998. The company has delivered a 5.5% annual increase in earnings per share since 2001, keeping its payout ratio under 50%.
Enbridge Inc. (NYSE: ENB): This Canadian energy company recently announced a 15% dividend increase, the 17th consecutive year of dividend growth. Its 4.26% yield equates to a 38% payout ratio.
The fact is, in today's global economy you can spice up your returns by adding some international flavor. Foreign market dividend stocks are a great place to start.
News & Related Story Links:
- Money Morning:
How to Pick Winning Dividend Stocks - Money Morning:
Emerging Market Dividend Stocks Give Investors the Best of Both Worlds - Money Morning:
The Hunt for Higher Yield: Investors Pour into Emerging Market Debt - Barrons:
Want Dividends? Look Abroad - Blackrock:
Why Dividends Make A Difference