Achievers, aristocrats, champions…just some of the names given to companies disciplined and profitable enough to pay out a high dividend yield every year.
Dividend champions are particularly attractive if you’re nearing retirement or are already retired. That’s because on top of capital growth (what happens when the stock price rises) they allow you to create a passive income stream in your account.
Most investors don’t stray beyond U.S. borders in their hunt for these dividend champions. But there are plenty of great dividend-paying stocks in the fast-growth economies of the emerging world. These offer the best of both worlds: big potential for capital growth plus fat dividends.
Something you should be aware of is that countries have different withholding tax rates on dividend payouts. Some can be steep. Malaysia, for instance, has a withholding-tax rate of 25%. The rate for Turkey is 15%.
But there are a number of great overseas investment destinations that don’t have a withholding tax at all. These include: Argentina, Brazil, Britain, Hong Kong (Local Shares), India, Mexico, Singapore, South Africa, and Vietnam.
Of course, you don’t have to stick to this list. If you find a dividend champion in another country, you just need to be aware that a withholding tax will affect your payouts.
I already recommended in your July issue that you consider buying shares of Brazilian brewer Companhia de Bebidas Das Americas (NYSE:ABV). This stock is a great long-term play on Brazil’s exploding middle class. And at writing, it pays out a dividend yield of 4.5%.
But a number of other dividend champions are worth your attention. Here are two more of my top recommendations:
First up is YPF S.A. (NYSE:YPF), an oil and natural gas exploration and production company based in Argentina. Eight million consumers throughout Latin America and Spain buy natural gas from YPF. And the company has interests in proven reserves of over five billion barrels of oil and oil equivalent.
At writing, YPF has a dividend yield of 7.5% (compared to the S&P 500 average of 2.3%). And Argentina charges 0% withholding tax. If you’re looking for a way to play higher oil prices while earning some passive income, YPF is definitely worth closer attention.
Another great overseas dividend champion is mobile communications company Vodafone Group Plc (NASDAQ:VOD). Vodafone is based in Berkshire, near London. But it is a truly global player. It has 371 million customers around the world. And it operates in over 30 countries and partners with networks in 40 more. It also has a 45% ownership stake in Verizon Wireless in the U.S.
Vodafone gives you a tax-free dividend yield of 5.5% because it’s based in Britain, which doesn’t charge a withholding tax. And management says it aims to raise the dividend by 7% a year through 2013. This means you get dividend growth, too.
Even better, Vodafone has a rock-solid balance sheet. Cash flow per share is $5.05. This compares to the market average of just $1.25. This measures the operating cash flow of a company dividend by common shares outstanding.
As I type, this stock is selling at a price-to- earnings ratio (P/E) of 10.7 relative to a growth rate of 25.7%, based on the average three- and four-year historical earnings-per-share growth rates.
This is a great way of working out if the company is selling at a fair price. All things being equal, the P/E ratio of any company that is fairly priced will equal its growth rate. Vodafone’s P/E ratio is less than half its growth rate—an indication that the market has dramatically underpriced the company’s growth potential. This makes Vodafone a great bargain buy right now.
Seven Currencies to Beat Inflation
By Gary Scott
KGHM Polska Miedz is a Polish mining company that mines copper and silver. I hold KGHM Polska Miedz shares in my portfolio because this is one of the largest silver miners in the world (a hedge against inflation), provides a multicurrency play, and pays a good dividend.
KGHM is the ninth-largest producer of copper and the third-largest producer of silver in the world. Shares of KGHM are backed by copper and silver but pay dividends so you gain income as well as capital appreciation.
The KGHM dividend policy is liberal. If profits are over 700 million zloty, 50% of profits above 700 million is paid as a dividend. If profits reach 1,700 million, the percentage rises to 60% and over 3,700 million, 100% of profit above this amount is paid as a dividend.
This multi-currency investment gives me a play in the Polish zloty. Over the past five years, the Polish zloty has been weak versus the U.S. dollar, but the zloty has turned around and has moved upward against the dollar. The trend was clearly seen this last year, when from July 2010 to June 2011 the zloty rose from 3.30 zloty per dollar to zloty 2.80 per U.S. dollar. Metals, multicurrency investments, and emerging markets are good places to invest and protect yourself against inflation.
This investment has all three.
**Gary Scott’s latest report on multi-currency investing, Cash In Crash, is available at Amazon.com
Editor’s Note: This article was taken from a past issue of International Living’s monthly magazine. To get full access to all past and future articles and to receive the magazine in the mail or online each month, you can subscribe here.