International dividend stocks are a great way to add diversification to a portfolio, especially since it's easier to find faster growth outside the United States. Owning foreign stocks could become even more compelling in 2013, if Congress fails to avert a fiscal cliff and the U.S. economy plunges back into a recession next year.
With this in mind, I went looking for lesser-known international dividend payers that have solid fundamentals and earnings growth potential. So I ran a screen for non-U.S. companies that yield at least 5%, have conservative balance sheets and that are forecast to grow earnings at least 10% in each of the next five years.
Here are my top five international stocks that offer income and growth opportunities for U.S. investors:
|1. Seagate Technology
|Ireland-based Seagate Technology (Nasdaq: STX) makes the hard-disk drives that go into PCs, servers, game consoles and other electronic devices that require mass storage. The company is benefiting from the growth of cloud computing and from its close relationship with device manufacturer Samsung, which also owns a major stake in the company. During the fiscal 2013 first quarter that ended in September, Seagate's earnings per share (EPS) improved threefold to $1.42 from 32 cents a year earlier. Analysts say Seagate should be able to grow earnings at a 15% rate in each of the next five years.
Seagate has a solid balance sheet, showing $2.4 billion of cash versus $2.9 billion of long-term debt, and an impressive cash flow of $4.2 billion in the past 12 months. Dividend payout is modest at only 20%, but the company has shown a laser-like focus on dividend growth this year -- it has already raised the dividend twice in 2012. The last increase was 18% in November to a per-share $1.52 annualized rate yielding 6%.
|2. Banco Macro SA
|While growth in Argentina's economy has slowed a bit in 2012, many analysts predict a rebound in Latin America's third-largest economy next year. Banco Macro (NYSE: BMA) is Argentina's sixth-largest bank and owns the largest branch network across Argentina. The bank mainly focuses on small- to mid-sized business customers outside of the capital city of Buenos Aires, where there is less competition and opportunities to gain market share quickly.
Banco Marco has been able to expand without the need to build new branches by acquiring smaller banks that are being liquidated by Argentina's Central Bank. The markets Banco Marco serves benefit from strong demand for the agricultural and mining products they produce and export.
Year-over-year earnings per share improved 31% in the third quarter of 2012 to $1.50 and analysts predict this bank could deliver at least 12% earnings growth in each of the next five years. Banco Marco has more cash than debt and an attractive 27.7% return on equity (ROE). Trailing 12-month earnings of $5.39 per share provide more than twofold coverage of the $2.08 dividend. Shares yield an outstanding 13.7%.
|3. Tal Education Group
|Tal Education Group (NYSE: XRS) provides K-12 after-school tutoring services in the People's Republic of China through a network of 260 learning centers across 15 major Chinese cities. The company also owns eduu.com, an education platform that serves as a gateway for online courses.
During the first six months of fiscal 2013 ending in February, Tal Education boosted student enrollments by 28% and improved earnings by 36.7% to 27 cents a share compared with a year earlier. Tal Education sees ample room for further growth, particularly in newer markets where the company is under-penetrated. Analysts look for Tal Education to deliver 27% earnings growth in each of the next five years.
Tal Education also made its first-ever dividend payment during the second quarter of the year, set at 50 cents per share. The company has no long-term debt and more than $223 million in cash. It produced cash flow of $73.4 million last year, which more than covers this year's $38.9 million dividend payment.
|4. Diana Containerships
|Diana Containerships (Nasdaq: DCIX) owns and operates a fleet of container vessels in Greece. The company was established in 2010 and has grown its fleet mainly through acquisitions. Diana took delivery of four new container ships in 2012, which expanded its fleet to 10 vessels. As a result, net income more than doubled in the first nine months of 2012 to $5.7 million from $2.3 million a year earlier. Currently, all 10 ships are under contract, with five ships available for new contracts in 2013 and the remainder to become available in 2014 and 2015.
Unlike other Greek shipping companies, Diana has been careful to avoid an overreliance on debt. The company has a good balance sheet that shows $64.3 million of cash versus $91.8 million of debt, and a conservative 37% debt-to-equity ratio. Diana generated cash flow of $12.5 million last year, which easily covered $4.2 million of dividend payments. The company initiated dividend payments last year and has increased the rate every quarter. It plans to maintain the current annualized dividend rate of $1.20 per share for the foreseeable future, according to the company's CEO.
IRSA Inversiones y Representaciones S.A (NYSE: IRS) is Argentina's largest real estate company. It currently owns 13 major shopping centers and 11 "AAA"-rated office buildings, primarily in Buenos Aires. Together, these holdings represent more than 450,000 square feet of leasable space. In addition, IRS owns three five-star hotels, a huge land bank across Argentina and a 30% stake in Argentina's largest mortgage bank, Banco de la Nación Argentina
During fiscal year 2012 ended in June, high occupancies for the shopping center and office portfolio helped to fuel 20.6% growth in EBITDA, which is the most meaningful earnings metric for real estate companies. IRSA reported similarly strong results in the first quarter of fiscal 2013 ended in September. EBITDA rose 14.3% to $51.3 million, while earnings improved to $10.5 million from a $23.1 million loss in the year-ago period.
The company is also strategically pruning its portfolio. It sold $15 million worth of non-strategic assets last quarter and agreed to acquire a majority stake in a downtown Manhattan office building. Consensus analyst estimates call for 13% earnings growth in each of the next five years. IRSA has more equity than debt, and produced a trailing 12-month EBITDA of $217.2 million that easily covers $59 million of dividend payments. IRSA's annual dividend of 76 cents a share yields a nice 10.7%.
Risks to Consider: All of these stocks pay dividends in their native currencies, so there is risk for U.S. investors from fluctuating exchange rates. In addition, many foreign companies pay dividends based on a percent of earnings, so dividends are cut when earnings weaken. Also, many foreign countries withhold taxes on dividends paid to U.S. investors. Argentina has no withholding tax on dividends but China and Greece withhold 10% and Ireland withholds 20%.