There has been a lot of press recently about the major U.S. averages reaching new milestones. The Dow Jones Industrial Average has been hitting new all-time highs, breaking past previous records not seen since 2000. Meanwhile, the S&P 500 has been trading at its best levels in more than five years. Although these are impressive stats, a number of foreign countries have delivered superior stock market returns over this same time period. In addition, most developed countries have outstripped U.S. equities by a wide margin so far this year.

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Compared to the S&P's +9% gain this year, one of the most popular foreign benchmarks -- the Morgan Stanley's MSCI Europe, Australasia Far-East Index, or EAFE -- is ahead over +14% in U.S. dollar terms. And within this index of the developed world, stocks in the 12-nation Eurozone bloc are leading the charge, with +20% returns year-to-date.

What's driving these international stocks to new heights? Economic growth, for starters -- the International Monetary Fund (IMF) forecasts the world economy will grow +5.1% this year, slowing to a still healthy +4.9% next year. However, the U.S. economy is expected deliver economic growth of just +3.4% this year, and that figure should fall to +2.9% in 2007. That's a marked decline from the +4.2% growth it posted in 2004.

In contrast to the steady downtrend of the U.S. economy, the Eurozone is in recovery mode. In fact, the 12-nation economic bloc is expanding at the fastest rate in six years. The European Commission estimates the economy will rebound sharply from an anemic +1.3% growth rate last year, and this year will post its fastest growth since 2000.

As the U.S. economy cools, the Fed appears to be nearing the end of its cycle of interest rate hikes. Meanwhile, central banks in Europe, Britain, and Japan are still raising their rates. Attracted by these rising rates, investors are moving capital into foreign assets. As a result, foreign currencies are continuing to strengthen against the U.S. dollar. The U.S. Dollar Index, which measures the value of the greenback against six major world currencies (the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc), is down nearly -5% this year.

The good news for U.S. income investors is that a weaker dollar translates into stronger returns from overseas investments. For example, Italian utility Enel (NYSE: EN) is trading at around $45 and provides around a $4 annual dividend. The share prices and dividends of Italian stocks are based on the euro. Right now, the euro is worth $1.26. That means EN's share price is equivalent to about 36 euros and its dividend equates to about 3 euros.

Going forward, suppose the dollar weakens and one euro is now worth $1.45. Since Enel's share price is based on euros, its value would increase about +15% in U.S. dollars even without a change in the underlying European share price. EN would now be worth almost $52 and its annual dividend would jump to $4.60.

Even with their recent gains, foreign stocks are still relatively cheaper than U.S. equities. According to equity research firm Standard & Poor's, price-to-earnings ratios for U.S. stocks are +15% higher than those for international stocks.

One caveat: If the U.S. economy slows, as many economists expect, then export-driven emerging markets in Asia (such as Korea or Taiwan) and commodity-based economies (such as Australia and Canada) could be vulnerable. A U.S. slowdown could also weigh on the recovery that's happening in Western Europe and Japan. However, these regions tend to have diverse economies and a strong enough consumer base to sustain growth even if their exports to the U.S. decline.

Given their high growth potential, income investors may want to diversify their portfolios by investing in a select group of developed international markets. The problem is some of the best international companies, with the greatest growth potential, are those that mostly serve their home markets and trade on domestic exchanges. These stocks are not readily available to U.S. investors, except via international equity funds.

Therefore, one of the best ways for U.S. investors to gain exposure to dividend-paying international stocks is to invest in closed-end global equity funds. In the table below, we present a handful of select funds with yields of 8% or higher that trade right here at home on the NYSE. Each fund holds a diversified portfolio of stocks from a variety of developed markets, including Europe and Japan. In addition, we have only included funds that do not use leverage (borrow money at short-term rates to reinvest at long-term rates), as this strategy is not well suited to the current interest rate environment.

Important Note:  Throughout the remainder of this article, editor Carla Pasternak provides a detailed look at six closed-end global equity funds that trade on the NYSE and offer dividend yields of at least 8.0%. However, in order to view the remainder of this article, you'll need to subscribe to our premium income-oriented newsletter -- High-Yield Investing. After you subscribe you'll receive immediate access to this full article, as well as our monthly High-Yield Investing newsletter and a host of additional premium content. Please visit one of the following links to continue...

Good investing!

Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several other nationally recognized financial publishers, her previous experience includes a position as President of a well-respected investor relations firm. She has also been writing shareholder reports for public companies (annual reports, speeches, corporate profiles, slide shows, etc.) since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also have the potential to deliver strong long-term capital gains.

On the educational front, Carla holds both MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing several million dollars in portfolio assets.

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