Want Dividends? Look Overseas
Foreign stocks provide a world of opportunities for income.
When it comes to finding reliable sources of money, home-grown standbys, such as utilities and banks, should not necessarily be at the top of your list. Consider looking abroad, where dividends are more generous. The yield of the MSCI EAFE index is 3.5%, compared with 2.1% for Standard & Poor's 500-stock index. "There seems to be more of a dividend culture in Europe, Asia and Australia," says Cliff Remily, associate manager of Thornburg Investment Income Builder fund. "In the U.S., management tends to think that the only way to grow is to retain earnings."
We came up with a list of five established overseas businesses that offer solid prospects and higher dividends than those paid by many U.S. businesses.
Last year, German financial-services giant Allianz (symbol AZ) sold off Dresdner Bank, much to the relief of shareholders. That allowed Allianz to focus on its core property-and-casualty insurance business, which accounts for almost three-fourths of the company's profits. (Its high-profile Pimco unit accounts for another 12%.) Even after cutting its payout earlier this year -- because of write-downs associated with Dresdner's subprime-loan losses -- Allianz still pays an annual dividend of 46 cents per share. At the August 7 closing price of $11, the stock yielded a respectable 4.3%. Analysts expect Allianz to earn 93 cents a share this year, then jump to $1.52 in 2010.
Sanofi-Aventis (SNY), a large drug maker based in France, sports an appealing yield of 4.4%. And at $33, the stock sells at a low seven times estimated 2009 earnings of $4.57 per share. Although patents will be expiring on Plavix, the com-pany's anti-clotting drug, and Taxotere, a cancer treatment, the firm's pipeline contains 51 potential new products that address seven broad areas, including cancer and heart disease.
Spain's Telefonica (TEF), the third-largest wireless operator in the world (after Vodafone and China Mobile), uses the steady cash flow from its wireless and land-line operations to pay an annual dividend of $3.24 per share. That gives the stock, at $74, a 4.4% yield. The company 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," says Sarah Ketterer, co-manager of Causeway International Value. Telefonica shares sell for ten times estimated 2009 profits of $7.40 per share, and analysts see earnings growing 4% next year.
Oil companies also have a rich tradition of paying dividends. BP (BP) is the third-largest oil company in the world, behind ExxonMobil and Royal Dutch Shell. Like the others, it has a sizable list of long-term exploration pro-jects in the works, including development of a deep-water oil-and-gas operation. BP recently won a bid, along with China National Petroleum Corp., to work eight oil-and-gas fields in Iraq.
BP is a bit more sensitive to oil-price fluctuations than its competitors are because exploration and production make up a larger portion of its operations than refining does. Analysts expect earnings of $3.60 per share this year, down from $8.17 in 2008. But they look for a big jump, to $5.56 a share, in 2010. The stock, at $51, yields a hefty 6.6%.
Unilever, the Anglo-Dutch food-and-consumer-staples giant, trades under two symbols (UN and UL). Both share classes held up slightly better than the market in 2008. And they outpaced the S&P this year as customers continued to wash with Dove soap and spread Hellmann's mayo on their sandwiches even as they cut back on other purchases.
Unilever has consistently increased its dividend. With UL at $27, down 23% since the start of 2008, the yield is a solid 4.3%. "Over the next two years we see the company bumping up its dividend to the $1.50 range," says Barry Arnold, director of the Primary Trend fund. That would be about a 30% increase from the current annual rate of $1.16. Analysts expect Unilever to earn $1.76 per share this year, more than enough to cover the dividend. That gives the company a reasonable P/E of 15.