Wednesday, June 10, 2009

Best International Dividend Stocks

In a previous article I provided a list with the best dividend stocks for the long run. Since the list included only US stocks several readers asked for a similar list with international dividend growth stocks instead. Furthermore, I am also looking to expand my portfolio to include at least some allocation to global dividend companies.

I do agree that in the globalized society of the 21st century it is important do be able to diversify your stock investments away from the US. By purchasing international stocks one essentially receives income in a different currency, which is a decent hedge against a possible devaluation of the US dollar. Another benefit of shopping for quality dividend stocks abroad is the huge potential for economic growth and development that both established and emerging economies posses.

There are some differences between US and international based dividend stocks. The first is that the dividend payments of foreign dividend stocks closely follow the earnings trend for the corporation. This is a problem for international dividend growth investors as it does not lead to a consistently increasing dividend income stream, which they are used to by investing in US companies. In the US companies are reluctant to cut dividends if the company had a bad year, while in Europe the dividends are more likely to be cut in response to short term fluctuations in earnings.

Another difference with global dividend stocks is that most pay dividends on an annual or semi-annual basis, which decreases the compounding effect of your payments. In addition to that, a certain percentage of your foreign dividends could be withheld directly from your payment, which decreases your income and makes individual dividend investing in a tax-deferred account inefficient. For example dividends paid from Canadian Companies to US investors are subject to a 15% withholding tax. The IRS however does give a tax credit for the current 15% Canadian withholding tax for foreign investors.
Different countries might have different taxation treaties for taxing dividends, thus you might consider hiring a good tax advisor.

Speaking of accounting matters, most foreign companies do not report results using the US GAAP but using IFRS. This could create material differences when analyzing foreign stocks, as there could be distortions in the amounts of net income, balance sheet values and cash flows.

In addition to that, most US based corporations have operations on a global scale, which derive a large portion of their revenues from abroad. I found that the ten stocks with the highest weights in the S&P 500 index derive about 44% of their aggregate financial contributions from foreign operations then the overall contribution to financial performance would be similar for the index as a whole. Thus an investor, who is simply invested in an S&P 500 index fund, is also properly diversified internationally. Adding any further international stocks could increase my international exposure, without adding any further incremental benefits.

I focused my study only on international stocks trading on the US exchanges. This does provide some limitations to the pool of available investments, but the risks to opening a non-US brokerage account in a foreign currency, paying taxes to foreign governments and paying higher brokerage fees for trades are not worth the incremental rewards for individual investors.

The companies I selected were foreign-based corporations, which have increased their dividends for at least five consecutive years. I tried creating a diversified list of foreign stocks, in order to avoid putting all my eggs in one basket.

Consumer Discretionary

SJR Shaw Communications Inc. (Cl B)
TRI Thomson Reuters Corporation

Consumer Staples

BTI British American Tobacco PLC (ADS)
CBY Cadbury PLC ADR
DEO Diageo (analysis)
UN/UL Unilever PLC/Unilever N.V.

Energy

BP BP PLC (ADS) (analysis)
ENB Enbridge Inc.
TK Teekay Corp.
TNP Tsakos Energy Navigation Ltd.
TRP TransCanada Corp.

Financials

BMO Bank of Montreal
BNS Bank of Nova Scotia
CM Canadian Imperial Bank of Commerce
MFC Manulife Financial Corp.
PRE PartnerRe Ltd.
TD Toronto-Dominion Bank (analysis)

Health Care

ACL Alcon Inc.
AZN AstraZeneca PLC (ADS)
FMS Fresenius Medical Care AG & Co. KGaA (ADS)
NVO Novo Nordisk A/S (ADS)

Industrials

MITSY Mitsui & Co. Ltd. (ADS)

Materials

BHP BHP Billiton Ltd. (ADS)
SQM Sociedad Quimica y Minera de Chile S.A. (ADS)

Telecommunication Services

NTT Nippon Telegraph & Telephone Corp. (ADS)
TEF Telefonica S.A. (ADS)
TU TELUS Corp.
VOD Vodafone Group PLC (ADS)

Utilities

NGG National Grid PLC (ADS)
VE Veolia Environnement (ADS)

The portfolio is not a recommendation to buy or sell any stocks, as it reflects my specific financial risk tolerance. Always do your own research before initiating a position in any financial instrument.

Full Disclosure: Long BP, TD and looking to enter other stocks mentioned here on dips

This post was featured on 209th Carnival of Personal Finance

Relevant Articles:

- Best Dividends Stocks for the Long Run
- International Over Diversification
- International Dividend Achievers for diversification
- My Dividend Growth Plan - Diversification

17 comments:

  1. Check out the Swedish cloth company H&M. It's the core of my dividend portfolio.

    Best regards Jens

    ReplyDelete
  2. Anon,

    H&M doesn't trade on NYSE,NASDAQ nor AMEX.

    ReplyDelete
  3. Ah, my bad:)

    Thanks for a great blog!

    Jens

    ReplyDelete
  4. For an International Dividend ETF, what do you think about DWX (SPDRS S&P International Dividend ETF)?

    It also has a decent sector and country distribution and is paying a pretty high dividend.

    The nice thing is the 25% sector and country limits so that the index doesn't get way overweighted in a particular sector or country.

    ReplyDelete
  5. Last Anon,

    Of the dividend etfs tracking foreign dividend stocks I would go for PowerShares Intl Dividend Achievers (PID).

    ReplyDelete
  6. You got a nice link from Rob Carrick from the Globe and Mail here in Canada.

    ReplyDelete
  7. As usual, clear and helpful discussion of pertinent information. Thanks.

    I am looking at Australia & New Zealand Banking Group (ANZBY.PK). Thoughts?

    ReplyDelete
  8. I think you should include phillip morris international (PM). It should pay out more like an american company (regular dividends that don't decrease after bad year) and will be completely diversified from the dollar.

    ReplyDelete
  9. Your advice like many others state "we are not responsible for any investment. Consult with a finanacial expert". My experienece in Edmonton, Alberta CANADA consulting 5 different experts resulted in minus 200 CK$. When asked they said they collected their commission, markets went down! My account dwindled. So all READERS WATCH, just because you hired a financial expert he or she is not going to make your account grow. You will have to take control by yourself. Financial eperts say "we are nor RESPONSIBLE FOR ANY LOSSES". Where do you go and WHY? This has become a Manthra for every expert!
    Vaidy Bala

    ReplyDelete
  10. Good post about dividend stocks overall, but it's important to keep in mind that not just high yield is important but how consistant it is as well. You mention BLT.L and even though they were paying nice dividend when commodity prices were very high they don't pay high dividend on a regular basis.

    ReplyDelete
  11. Why is TRI in your list of International stocks? It's headquartered in New York and gets 58% of its sales from the Americas (per its web site).

    I agree with previous poster about PM. It's a US company but split off from MO to be dedicated to international sales. The spinoff was just over a year ago so not much history unless you assume it will be similar to MO (which I do).

    ReplyDelete
  12. Forgot to say, thanks for the blog and this list.

    Materials sector is tough for dividends as they tend to be volatile payers.

    You might want to consider CRH for this sector to diversify away from mining. It's an Ireland-based company dealing in cement, asphalt, and such (and has DIY stores).

    It has an 8-year history of increases but will probably miss this year (macro effects).

    ReplyDelete
  13. Great post, looking in to several of your suggestions. What about New Zealand Telecom (NZT)? They pay dividends quarterly, but do withold taxes.

    ReplyDelete
  14. MG,

    Could you please e-mail me the link to The Globe and Mail article to me? It's at dividendgrowthinvestor at gmail dot com. Thanks!


    TimR,

    I need to research ANZ further. Financials are a tough sector to invest in right now.
    It does appear as if they froze their dividend in 2008, which is not something I like in a stock candidate;
    http://www.anz.com/about-us/shareholders/dividend-information/history-current/


    SCorp99,

    PM could be a nice addition to the list. However it doesn't have a history of consistently raising dividends for 5 years.

    Anon,

    I am not an investment advisor. This blog mainly consists of ideas I am investing in or reserching, that interest me. It is not investment advice, but mainly educational.
    I am sorry you lost money in the markets. But if you followed a strategy you were comfortable with, which you understood well, and had a properly diversified portfolio, you could have probably lost a lot less. If you educate yourself on different methods of investing in the stock market then maybe one day you would find the best strategy for you. Untill then, keep digging.

    S&D,

    This link suggests that they are still paying high dividends:

    http://finance.yahoo.com/q/hp?s=BLT.L&a=00&b=1&c=2003&d=05&e=19&f=2009&g=v

    NoFreeCake,

    Thompson was a canadian corporation, Reuters was a British corporation and it was acquired by Thompson in 2008. TRI is also an international dividend achiever.
    Operational HQ is in NYC -there are also HQ in London and Toronto.Revenues in 2008 were derived from the Americas
    (58%), Europe, Middle East and Africa (32%) and Asia (10%).

    BillG,

    While the yield is high, I don't like fluctuations in dividend payments:
    http://investor.telecom.co.nz/phoenix.zhtml?c=91956&p=irol-dividends

    ReplyDelete
  15. Thanks for the heads up on ANZBY. I didn't pick up on the dividend freeze.

    ReplyDelete
  16. Looks like Nestle isn't included in the International Divd Achievers list (on Powershares). It's not for lack of dividend increases which are now 13 years running. I can only guess because it's sold OTC. I normally avoid those but Nestle is establisehd company with plenty of share volume.

    If you used a similar list as a starting point, you may want to look at NSRGY. For dividend history, see:

    http://www.nestle.com/InvestorRelations/InvestorFAQs/DividendFAQs/DividendFAQs.htm

    ReplyDelete
  17. Oops, url was too long. For Nestle, try:
    http://tinyurl.com/m6y97p

    ReplyDelete

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