8 High Yield Foreign Stocks

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published 15 September 2011

With markets around the world in turmoil, this is a great time to home in on solid dividend-paying stocks. The idea, of course, is that although stock prices are volatile, dividends represent cash in hand.

For most Americans, the search for dividends is limited to U.S. companies. But if you’re willing to do some extra homework and go beyond your comfort zone, you’ll find an array of excellent dividend-paying stocks outside our borders.

Foreign companies provide diversification and, in the case of emerging-markets companies in particular, offer potential for faster growth than the typical domestic company. On top of that, foreign stocks yield more, on average, than U.S. issues do, and they pay dividends in their own currencies, which are more valuable to U.S. shareholders when the dollar sinks.

The eight American depositary receipts listed in the following slides trade on the New York Stock Exchange. All prices and related data are as of September 15, 2011.

BHP Billiton (BHP)

Headquarters: Melbourne, Australia

Price (Sept. 15): $78.78

Market value (bill.): $215.4

Earnings per share: $9.00 (for the fiscal year ending June 2012)

Dividend yield: 2.8%

5-yr. div. growth rate: 23.3%

This global resources giant mines everything from aluminum to zinc. The company has prospered thanks to a boom in demand for natural resources, especially from fast-growing emerging nations. That trend should continue as long as the world avoids a global recession. BHP should deliver an attractive total return -- dividends plus appreciation -- over the long haul.

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Empresa Nacional de Electricidad (EOC)

Headquarters: Santiago, Chile

Price (Sept. 15): $47.72

Market value (bill.): $13.1

2011 estimated earnings per share: $4.02

Dividend yield: 5.5%

5-yr. div. growth rate: 10.8%

South America’s biggest private electric utility, known informally as Endesa Chile, provides power mostly in Chile, Argentina and Colombia. Its dividend yield compares favorably with the best U.S. electrics, but its prospects are better, given the steady 4% to 6% economic growth in the region it serves and Endesa’s long list of power projects under construction. Because Endesa gets most of its electricity from hydropower, dry weather and climate change present special risks.

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Novartis (NVS)

Headquarters: Basel, Switzerland

Price (Sept. 15): $56.45

Market value (bill.): $137.0

2011 estimated earnings per share: $5.57

Dividend yield: 3.6%

5-yr. div. growth rate: 18.5%

The Swiss drug maker is the world’s third-largest pharmaceutical company and a member of S&P’s Europe 350 Dividend Aristocrats index. It is well-diversified, with a broad portfolio of prescription drugs, over-the-counter medicines and eye-care products. Returns on Novartis’s shares have trounced those of U.S. and other European drug giants over the past five years. Its location means U.S. investors benefit from the super-strong Swiss franc.

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Companhia de Saneamento Basico do Estado de São Paulo (SBS)

Headquarters: São Paulo, Brazil

Price (Sept. 15): $52.94

Market value (bill.): $6.0

2011 estimated earnings per share: $7.31

Dividend yield: 7.1%

5-yr. div. growth rate: 9.8%

Compared with U.S. water stocks, this Brazilian water-and-sewer utility yields way more and pays out far less of its profits as dividends (only 30%). That gives it the flexibility to boost dividends even more. Saneamento also has plenty of growth potential. It will take decades to bring water and sanitation to hundreds of poor settlements and to the new residences, offices and factories going up in booming Brazil. Dividends, which vary year to year, were 29% higher in 2010 than they were in 2009.

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Telefonica (TEF)

Headquarters: Madrid, Spain

Price (Sept. 15): $19.61

Market value (bill.): $88.7

2011 estimated earnings per share: $2.53

Dividend yield: 8.8%

5-yr. div. growth rate: 29.5%

This provider of phone and Internet services in Europe and Latin America offers an unusually high yield. Part of that is because of the perceived risk of being headquartered in Spain, which some worry could be the next Greece. But Telefonica is far from a pure investment in Spain. The rest of Europe and Latin America, from Mexico south, account for 71% of Telefonica’s revenues and 64% of its profits. Europe will produce little growth, but Telefonica generates enough cash flow to keep raising its dividends.

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Total (TOT)

Headquarters: Paris, France

Price (Sept. 15): $45.57

Market value (bill.): $102.5

2011 estimated earnings per share: $7.51

Dividend yield: 6.1%

5-yr. div. growth rate: 12.5%

Europe’s largest oil refiner -- and one of the shrinking club of integrated oil companies -- is also involved in natural gas, as well as solar and wind energy. The chief difference between Total and other integrated multinationals, such as BP (BP), Chevron (CVX) and ExxonMobil (XOM), is its yield: At 6.1%, Total yields about twice as much as Exxon, which prefers to buy back huge amounts of its stock rather than boost its payout by a large amount.

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Unilever (UN)

Headquarters: London, England, and Rotterdam, Netherlands

Price (Sept. 15): $31.29

Market value (bill.): $88.1

2011 estimated earnings per share: $2.34

Dividend yield: 4.2%

5-yr. div. growth rate: 7.0%

Unilever competes with the likes of Procter & Gamble to sell soap, personal products and food. Well-known brands include Dove soap, Hellmann’s mayonnaise, Ben & Jerry’s ice cream and Vaseline. This is an odd duck. You can buy British ADRs (UL) or Dutch ADRs (UN). Their prices may vary by a few hairs because of different exchange-rate trends among the dollar, pound and euro. Either way, Unilever has paid dividends since 1937 and is your basic tried-and-true, low-risk, growth-and-income stock.

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Vodafone (VOD)

Headquarters: Newbury, England

Price (Sept. 15): $26.11

Market value (bill.): $134.7

Estimated earnings per share: $2.78 (for the fiscal year ending March 2012)

Dividend yield: 7.4%

5-yr. div. growth rate: 8.0%

This cell-phone service provider in Europe, Asia, Africa and the Middle East also owns 45% of Verizon Wireless (the rest is owned by Verizon Communications), which represents a major part of Vodafone’s fortunes. After not paying a dividend to its owners for six years, Verizon Wireless announced recently that it would distribute $10 billion to its parents next January. Vodafone’s stock-price chart closely tracks that of Telefonica, but you ought to own shares of both if you’re interested in global telecommunications.

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Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.