Stock Watch

Want Dividends? Look Overseas

When stock prices are zipping and zooming, investors don't pay much attention to dividends. But with the stock market's recovery stalling, at least for now, dividends are likely to be a bigger component of investors' total return. When U.S. investors consider high-dividend stocks, they usually think about utilities, real estate trusts and a few other sectors. But the best opportunities may lie overseas.

RELATED LINKS
	Going Abroad for Dividends
	How to Tap Foreign Bonds and Currencies
	A Safer Way to Tap Emerging Markets

The dividend yield of the MSCI EAFE index is 3.8%. That compares with 2.3% for Standard & Poor's 500-stock index. Stocks in Europe and Asia (other than Japan) offer the highest payouts. "There seems to be more of a dividend culture in Europe and Asia," says Cliff Remily, associate portfolio manager of Thornburg Investment Income Builder fund. "In the U.S., management teams tend to think that the only way to grow is to retain earnings."

Here are four attractive foreign stocks with appealing dividend yields:

The last place to look for stable dividends lately has been financial stocks. Many companies have cut or suspended their dividends. And, as part of various government rescue efforts, banks have been restricted in the amount of money they can pay out. But insurance is a different matter. The property-and-casualty business is fairly stable -- and lucrative.

Take Allianz (symbol AZ). Last year, the German financial-services giant sold off its Dresdner bank to Commerzbank, much to the relief of shareholders. Allianz had tried to build itself up as a financial supermarket with the 2001 acquisition of Dresdner, a move that ultimately failed. The sale has allowed Allianz to focus on its core property-and-casualty business, which accounts for almost three-quarters of the company's profits. Life insurance accounts for another 16%, and asset management, especially through the high-profile Pimco unit, is another 12%.

"With insurance you get fixed cash flow as people pay their premiums, and that money passes through to the balance sheet," says Chad Deakins, manager of the Ridgeworth International Equity fund.

Even after cutting its dividend earlier this year, Allianz still pays a dividend at an annual rate of 36 cents per share. At the July 15 closing price of $9.64, the stock yields a respectable 3.7%. The dividend reduction was primarily due to write-downs associated with Dresdner's subprime losses. With that episode out of the way, Allianz's dividend looks secure.

Analysts expect Allianz to earn 96 cents a share this year, giving the stock a price-earnings ratio of 10.

Sanofi-Aventis (SNY), a large Paris-based drug maker, sports an appealing yield of 4.7%. And at $30.46, the stock sells at a ridiculously cheap seven times estimated 2009 earnings of $4.31 per share. As with U.S. drug makers such as Pfizer, investors are worried about expiring patents for Sanofi-Aventis products, including Plavix (a treatment for blood clots and prevention of heart attack or stroke) and Taxotere (a chemotherapy drug) and the likelihood of strong competition from generics.

But a good yield and a low P/E are not the only reasons to own Sanofi. The company’s pipeline contains 51 potential new products that address seven broad areas, including cancer and heart disease. "We like Sanofi-Aventis not so much for its payout capacity as its ability to continue innovating," says Sarah Ketterer, a manager of the Causeway International Value fund.

Spain's Telefonica (TEF), the third-largest wireless operator in the world (after Vodafone and China Mobile), uses the steady cash flow it generates from its wireless and land-line operations to pay an annual dividend of $3.24 per share. That gives the stock, at $68.55, a 4.7% yield.

The company has felt the effects of the global recession, but it has benefited from strong growth in Latin America, where it continues to expand its subscriber base. "There is so much demand for data that the global players are likely to see revenues continue to rise," Ketterer says. "If the recovery isn't quite as buoyant, then the telecom companies are perfect stocks to own because they have very resilient customer bases."

Telefonica has certainly shown its muster. First-quarter net income rose 9.8%, to 1.7 billion euros ($2.3 billion), from the same period in 2008. Analysts expect Telefonica profits to grow 8.6% in 2010, to $7.69 a share, which gives the stock a reasonable P/E of 9.

Oil is another area with a strong dividend tradition. BP (BP) is the third-largest oil company in the world, behind ExxonMobil (XOM) and Royal Dutch Shell (RDS.A). Like the others, it has a large list of long-term exploration projects in the works, including development of a deep-water oil-and-gas operation. "Despite the drop in the price of oil over the last year, the super majors like BP still continued to develop long-term projects, believing that the price of oil was heading up," says Catharina Milostan, an analyst with Morningstar.

BP is geographically diversified. It recently won a bid, along with China National Petroleum Corp., to work eight oil-and-gas fields in Iraq. Although it had to make price concessions to the Iraqi government, BP did snag a 20-year service contract to develop the Rumaila field in Iraq.

BP is a bit more sensitive to fluctuations in the price of oil than its competitors because a larger portion of its operations is exploration and production, rather than refining. Analysts expect earnings of $3.58 per share this year, down from $8.17 in 2008. But they look for a big jump, to $5.71 a share, in 2010. The stock, at $48.33, yields a hefty 7.0%.

• Ask a Question

• Print
• Comments
• Email
• RSS

Reader Comments (2)