Strong Dividends From Foreign Companies
By the time you read this, I’ll have landed in Israel, where I’m leading about 35 Oxford Club Members on an investment and sightseeing tour. It’s my second time hosting the trip, and we’re going to meet some exciting companies.
One of my favorite parts of my job is traveling the world and meeting with executives, bankers and money managers to learn about their perspectives and what makes investing in their countries unique.
I think it’s an important thing to learn. It’s becoming a more global investing world, and you can’t own just American stocks if you want to do well.
In fact, The Oxford Club recommends that 30% of your portfolio be comprised of foreign stocks.
These stocks have different risk factors than U.S. stocks. Currency valuations, political decisions and different national economies can all affect the stock’s price.
And you must consider taxes when investing in foreign companies, particularly dividend payers. Most foreign tax authorities will automatically remove the owed tax from the dividend.
For example, if a company based in Canada owes its shareholders $100 in dividends, U.S. investors would receive only $85, as Canada’s dividend tax on U.S. investors is 15%.
The good news is you will receive a tax credit from the IRS for the amount paid to a foreign government – but only if the stock is held in a taxable account. If it’s held in a tax-deferred account, the foreign government will still tax your dividend before you receive it and you will not get a credit from the IRS. So it’s usually a good idea to keep foreign stocks in a taxable account.
Let’s take a look at a few attractive dividend payers that are located outside of the U.S.
Diageo (NYSE: DEO) is one of the world’s largest alcoholic beverage companies. Based in the U.K., its brands include Johnnie Walker, Guinness and Captain Morgan. There are rumors that it will get into the marijuana space like rival Constellation Brands (NYSE: STZ). The stock pays a 3.1% yield, and the company’s net income grew 13.5% this year.
GlaxoSmithKline (NYSE: GSK) is a leading pharmaceuticals company based in England. It has a strong 5% yield. The stock is cheap at just 13 times forward earnings.
Mobile TeleSystems (NYSE: MBT) is for those who can handle higher risk in exchange for a higher yield. The Russian telecommunications company pays a hefty 10.3% yield and is the dominant player in Russia. However, the risk is elevated, as it is reliant on the stagnant Russian economy.
Nestlé (OTC: NSRGY) is a household name in the food industry. Headquartered in Switzerland, its brands include Nestlé Toll House, Gerber and Purina. It pays a 2.9% yield and is expected to grow earnings by 11% per year over the next five years.
And lastly, since I’m in Israel at the moment, consider an Israeli company: Ituran Location and Control (Nasdaq: ITRN). Ituran makes location-based services that track stolen cars and provide fleet management and navigation guidance. It pays a 2.8% yield. Profits have been growing strongly, and earnings per share are projected to increase 20% next year.
Foreign companies play an important part in portfolio diversification. Make sure you have some in your portfolio so that when stocks outside of the U.S. beat American stocks, you are participating in that outperformance.
Good investing,
Marc
