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All Contents © 2018The Kiplinger Washington Editors
By Ken Berman, Contributing Writer
| June 26, 2018
Income investors can do well enough by staying domestic in their hunt for dividends. But they can add some oomph by branching out into international dividend stocks, which provide several benefits.
First, international stocks on average offer higher yields than their domestic counterparts. An index of international developed-market stocks – the MSCI EAFE – shows international stocks yielding roughly 2.6% right now, versus about 1.8% for the Standard & Poor’s 500-stock index of U.S. large-cap companies. International companies also tend to pay out about 35% to 45% of their earnings in the form of dividends, versus 25% on average for U.S. stocks.
There are other perks, too. International dividend stocks diversify an equity portfolio so you’re protected against weakness in the U.S. They also help protect against inflation. International stocks domiciled in “emerging” markets such as China and India may also offer better growth prospects than in a developed market such as the U.S. And lastly, with American stocks trading at high valuations, historically speaking, international stocks – particularly those in Europe – may offer better values at present.
Here are 10 international dividend stocks to consider buying today. Each of these offers an attractive blend of yield and/or dividend growth and stability – not to mention the benefits of geographic diversification.
Data is as of June 25, 2018. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price.
Market value: $105.3 billion
Dividend yield: 1.7%
Accenture (ACN, $156.16), formerly known as Anderson Consulting, is a worldwide consulting company that is shifting its business model to focus on helping businesses make the transition to digital.
Accenture’s yield, which is slightly below the S&P 500, is atypical of this list. Still, shares are a good choice for global dividend investors. Wall Street analysts target high-single-digit revenue growth, with more than 60% of its sales coming from digitally related services, cloud services and network security. That, combined with ACN’s strong cash flow, should result in ample dividend growth in the coming years. Indeed, management said it expects to hike its payout in line with earnings; if so, that would mean double-digit annual dividend growth, based on analysts’ projections for the next five years of earnings.
Analysts at Wells Fargo laud Accenture’s commitment to returning cash to shareholders via both share buybacks and dividend increases.
Also, a note about taxes: Different countries levy taxes on dividend income too. If you’re in the U.S. but receiving dividends from a foreign stock, the broker will withhold the foreign country’s tax and pay it to said country on your behalf. However, you’ll receive a foreign dividend tax credit that can offset the amount dollar-for-dollar when paying dividend taxes to the U.S. In the case of Accenture, Ireland withholds at a 20% rate.
Market value: $149.4 billion
Dividend yield: 5.4%
BP plc (BP, $44.24) is an integrated oil and gas company that acts as an example of an international blue-chip that offers more income than its U.S. counterparts. Shares of American energy titans Chevron (CVX) and Exxon Mobil (XOM) yield 3.6% and 3.9%.
While BP did suspend its dividend after the 2010 Deepwater Horizon oil spill, then brought it back at a reduced amount, the company has maintained and grown that payout even amid aggressive cost cutting. For instance, production costs ended 2017 down 17% year-over-year. The upside: BP’s operating cash flow easily covered capital expenditures and dividend payments, even with Brent crude oil below $50. BP expects to further reduce its oil breakeven price to $35-$45 per barrel of Brent crude by 2021.
BP says that, excluding costs to replace equipment, the dividend is fully covered at a Brent crude price of $42 per barrel. Brent crude currently trades above $76, so the divided not only looks secure, but ripe for further increases. Better still, analysts at Bank of America/Merrill Lynch expect higher oil prices and less “uncertainty” surrounding oil-spill related litigation to make BP better able to cover its dividend.
Also, the company is based in the U.K., and thus investors face no foreign tax on dividends.
Market value: $10.5 billion
Dividend yield: 4.8%
Brookfield Infrastructure Partners (BIP, $37.92) is based in Canada, but its variety of infrastructure businesses operate globally, including communications equipment in France, timberlands in North America, shipping terminals in Australia, toll roads in South America and transmission lines in Chile.
BIP’s unique assets face few competitors (none at all, in some cases) and consistently generate substantial cash flow irrespective of the economy. Management reinvests a part of earnings in its businesses and pays the rest out as dividends.
Going forward, the company expects dividend payments to increase between 5% and 9% per year, and shares already yield close to 5%. Analysts at BMO Capital Markets expect Brookfield’s strong cash flow to sustain dividend growth at the high end of management’s 5%-9% target range.
Canada’s withholding tax for dividends is on the high side, at 25%.
Market value: $88.1 billion
Dividend yield: 2.4%
Diageo (DEO, $142.94) is a highly profitable spirits company whose portfolio of alcoholic beverages include brand titans such as Johnnie Walker scotch, Smirnoff vodka, Captain Morgan rum, Tanqueray gin and Crown Royal Canadian whisky.
The stock’s above-average yield, strong brands and solid growth potential make it an attractive international dividend stock. The company’s presence in emerging markets has been and should continue to be an earnings-growth driver; its businesses in Africa, Asia and Latin America posted solid revenue growth in 2017. Analysts at Bank of America/Merrill Lynch were happy with Diageo’s first quarter free cash flow of 1 billion euros and expect the company’s FCF positions the company for buybacks and future dividend hikes.
Diageo currently pays an annual dividend of $3.46, up 8% from last year. The current yield of 2.4% may not appear very high, but the company consistently raises its dividend, including a 10% bump in FY 2017.
Market value: $99.4 billion
GlaxoSmithKline (GSK, $39.92) is an $88 billion pharmaceutical company. In addition to its many pharmaceutical products, the company sells consumer-health products such as Aquafresh and Sensodyne toothpaste, Poligrip denture adhesive, Theraflu medicine and Tums antacids. It also was GlaxoSmithKline’s product pipeline that led to the invention of Nicoderm, the smoking cessation product.
Looking forward, GSK has some promising drugs, including shingles vaccine Shingrix and HIV pill Juluca, that received regulatory approval just last year. GlaxoSmithKline also will be working with Novartis’ consumer healthcare unit, which it bought for $13 billion earlier this year.
Analysts at Bank of America/Merrill Lynch note that the company prefers to return cash to shareholders through dividends – made apparent by its 5%-plus yield at current prices.
Market value: $37.3 billion
Dividend Yield: 5.5%
National Grid (NGG, $55.60) isn’t a pure international play, as it’s an electric and natural gas utility with exposure to both the United Kingdom and in the United States. Still, it does offer some diversification, and it consistently generates dividends.
Electric and natural gas utilities are not the flashiest businesses, but they are nearly impossible for competitors to enter. National Grid owns and operates about 4,500 miles of power lines and about 4,800 miles of gas pipeline. For competitors to duplicate these networks of power lines and gas pipelines would be prohibitively expensive and difficult.
NGG shares are also dirt-cheap at the moment, trading at roughly 8 times trailing 12-month earnings.
National Grid typically pays dividends in January and August.
Market value: $233.0 billion
Dividend yield: 3.2%
Nestle (NSRGY, $75.66), with operations in 190 countries and more than 2,000 products offered, is the world’s largest food and beverage company and is diversified across various consumer products and geographies. Its products include beverages, health and wellness items, milk and ice cream, pet care, prepared foods, sweets and bottled water.
Nestle’s stock is trading near a 52-week low. However, a $7.15 billion deal with Starbucks (SBUX) that gives Nestle the rights to sell the coffeemaker’s branded products around the world could inject some life into shares. The company also plans to emphasize growth areas such as pet care and infant nutrition going forward.
The larger environment is also conducive to success for the Swiss foods giant. Analysts at Bank of America/Merrill Lynch expect cyclical stocks like Nestle to benefit from an accelerating economy in 2018.
Just note that the Swiss government will withhold a hefty sum of 35% on Nestle’s dividends.
Market value: $172.1 billion
Dividend yield: 4.0%
Novartis (NVS, $74.03) is a Swiss-based pharmaceutical company whose top drugs include the likes of Gilenya for multiple sclerosis, Cosentyx for psoriasis and psoriatic arthritis, and leukemia/cancer treatment Gleevec.
The company did sell off its share of a joint consumer health-care unit with GlaxoSmithKline, but it has acquired AveXis, whose lead product candidate is a one-time gene replacement therapy for spinal muscular atrophy.
NVS stands to benefit from an aging population in the U.S., as well as higher demand in emerging markets as growing middle classes gain increasing access to medicine. The dole for 2018 came to $2.98 per share – a payout ratio of 87% compared to a 97% payout ratio for the year prior. Novartis is actually a serial dividend raiser, compiling a 21-year streak of consecutive payout hikes.
Analysts at Bank of America/Merrill Lynch are sanguine about cash flow from “profitable” investments, which bodes well for the payout going forward.
Market value: $187.5 billion
Roche Holding (RHHBY, $27.43) is another Swiss healthcare company that boasts a strong drug portfolio and industry-leading diagnostics products. As the world’s largest biotech firm, as well as the world’s largest diagnostic laboratory equipment company in the growing business of oncology (tumors), Roche leads the industry in providing more personalized products and increasing cost-effectiveness.
Roche also boasts a strong pharmaceutical business, anchored by Genentech, which it bought for $46.8 billion in 2009.
Analysts at Morningstar expect Roche’s emphasis on biologics (drugs in extracted form) and strong pipeline to sustain its competitive advantage and enable growth over the next several years.
The company helped its own case in April when it beat earnings expectations and lifted its full-year forecast thanks to gains in new drugs for MS and hemophilia.
Market value: $299.3 billion
Dividend yield: 5.3%
Royal Dutch Shell (RDS.B, $70.67) has been operating as an integrated oil and gas company for more than 100 years and offers investors a reliable dividend above 5%. It also offers something of a tax headache, as its A shares fall under Dutch law (15% withholding tax), but its B shares fall under U.K. law (no withholding tax).
That headache will be going away in 2019, however, as a new policy in the Netherlands will abolish that tax.
Thanks to its operational efficiency, Shell’s refining business generates earnings even during periods of weak oil prices. The recovery in oil, meanwhile, has helped its exploration and production business return to profitability after losses in 2016.
Shell projects an additional $10 billion in cash flow from current projects by the end of 2018; analysts at BofA/Merrill Lynch expect those projects to sustain the company’s payout. That, as well as higher oil prices, should bode very well for Shell’s cash situation. The company expects annual cash flow of $25 billion to $30 billion by 2020 based on oil prices of $60 per barrel, which is lower than where it has traded lately.
Market value: $65.2 billion
Dividend Yield: 2.8%
Suncor Energy (SU, $38.70), Canada’s second largest oil producer, is an odd bird in that it produces synthetic crude oil from oil sands. It also is the world’s top producer of bitumen, and also produces natural gas.
Suncor ended 2017 strong, generating an outstanding $9.1 billion in funds from operations, powered by a quarterly record $3 billion in quarterly funds from operations. Driving this strong performance were higher oil prices, record oil production and falling operating expenses, which as a percentage of sales fell to their lowest level in more than 10 years.
As a result, Suncor generated enough cash to fund its capital investments, retire debt, repurchase $1.1 billion of its shares in 2017 and hike its dividend by 12.5%.
Last year also was notable in that Suncor finished two important growth projects in the fourth quarter, positioning it to post a 9% compound annual growth rate (CAGR) in output over the next three years. That gave the company confidence to not only boost its dividend, but also to authorize another $1.6 billion in share repurchases.
Market value: $191.3 billion
Dividend yield: 3.1%
Toyota (TM, $128.57) is a Japanese automaker worthy of investors’ consideration. Toyota manufactures and sells automobiles under both the Toyota brand and the Lexus luxury brand, and it’s striving for the title of world’s largest automaker – title currently held by Renault-Nissan-Mitsubishi.
Shares in many auto companies, domestic and international, are trading at P/Es in the low double digits and even high single digits. That said, there’s still some exciting growth potential. While Tesla Motors (TSLA) gets most of the notice for driverless technologies and other advances, established manufacturers such as Toyota are churning ahead with similar technologies. Moreover, they already have manufacturing capabilities and dealer networks in place to get those cars to market better.
TM shares trade at about 8.6 times trailing earnings, which is at the end of their historic range. Analysts at Standard & Poor’s think Toyota’s consistently above-average earnings and financial strength warrant a more premium valuation.
Toyota manages its dividend conservatively, with a policy of paying out about 30% of its profits to shareholders. Nonetheless, the company has lifted its dividend – paid out twice a year, typically in December and June – by more than 50% since 2013.
Dividend investors in Japan pay a dividend tax of either 15% or 20%.
Market value: $151.8 billion
Unilever (UN, $55.25), established in 1885, is a dividend stock in the consumer staples sector. It has 13 brands that generate more than $1 billion in annual revenue annually. Unilever’s better-known brands include Axe and Dove body-care products, Hellman’s mayo, Lipton teas and Knorr mixes.
The company’s large size and geographically diverse businesses provide it a competitive advantage. Unilever has a significant presence in such emerging markets as Africa, China and India, entering them early than many American consumer companies and gaining a first-mover advantage.
Unilever’s ambitious acquisitions plans will aid future growth. Management aims to acquire companies with the potential to upend existing product categories in the consumer products industry. Since 2015, it has made 18 acquisitions.
Unilever pays its dividend annually. Important to note is that the company is moving its headquarters to the Netherlands to simplify its business structure. Its UL shares are tethered to Britain, while its UN shares are tied to the Netherlands. The company will retain its UL shares once its headquarters move, but investors for now should focus on UN shares. Those are subject to a 15% dividend tax … at least until 2019, when the dividend tax is abolished.
Analysts at Morningstar expect the company’s recent 8% increase in the dividend and share buyback program to benefit shares further.
Market value: $64.8 billion
Dividend yield: 7.3%
Vodafone (VOD, $24.54) is a telecommunications company that has more than 30 million fixed-line customers and 500 million-plus mobile customers. And while it does most of its business in Europe, it also has a substantial presence in emerging markets.
Looking ahead, Vodafone’s growth prospects appear promising thanks in large part to its aggressive expansion in India. Last year, Vodafone India agreed to acquire Idea Cellular and become Vodafone Idea. The deal resulted in Vodafone becoming the market-share leader in India, which is among the most attractive emerging markets. India currently is a fragmented market, but its population of more than 1 billion and its rapidly growing economy mean there’s plenty of wealth to share.
Analysts at Bank of America/Merrill Lynch expect the company’s recent acquisition of Liberty Global’s (LBTYA) European assets to increase cash flow and result in higher dividend coverage.
Vodafone pays dividends semi-annually.
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