The Best Way To Invest In International Income Stocks
I talk to a variety of investors on a daily basis — and most everyone is stuck in a rut.
#-ad_banner-#Successful or not, they invest the same way over and over again. Most don’t look beyond what they are already comfortable with, no matter what.
The ability to think outside the box is often what differentiates outstanding investors. Venturing beyond your comfort zone into different strategies and types of investments can make the difference between another average year and your best year ever.
This is particularly true when it comes to looking for dividend yield. The majority of income investors are focused only on U.S. stocks — which means they’re missing out on the massive opportunities available beyond America’s borders.
In a recent study, mutual fund research firm Lipper found that U.S. stock income funds have $359 billion in assets — with just $13 billion allocated to international stock income funds.
Perhaps even more interesting, of the $1 trillion in dividends paid worldwide in 2013, U.S. companies accounted for 37%. This means that nearly two-thirds of the world’s dividend payouts — 63% — comes from international stocks.
In other words, most American stock investors are missing out on a gold mine of international dividends.
Investors can add a diversified basket of high-yielding international stocks to their portfolios by buying individual stocks. There is nothing wrong with this strategy, and some investors prefer to do it this way.
However, for most investors, adding international dividend payers is much more easily done through a variety of mutual funds that cater to this niche. Mutual funds provide professional management, diversification, and ease of entry and exit in a pre-built portfolio. The downside is that there are management fees involved with mutual funds, but I’ve found the benefits usually far outweigh the downside.
My favorite international dividend mutual fund is BlackRock Global Dividend (BABDX), which is up nearly 6% this year and is composed of well-established multi-national companies. Launched in 2008, the fund has $2.1 billion under management and focuses on shares with income and dividend growth potential.
Assets are allocated internationally with close to 47% to Europe, just over 43% to North America, 4% to the Pacific Basin, and just under 3% to a variety of emerging markets. The remainder is in a mixture of cash and derivatives. Consumer staples has the highest sector allocation, with just under 33%, followed by health care at nearly 20%.
Digging into the top equity holdings, Imperial Tobacco (OTC: ITYBY) takes the top spot with a 3.7% allocation, followed by Roche (OTC: RHHBY) with 3.2% and McDonald’s (NYSE: MCD) with 3.1%.
As Stuart Reeve, the fund’s lead manager, recently told Bloomberg: “The yield for the Standard & Poor’s is 1.9%, and in the rest of the world the average is 3.3%. A big part of this is cultural. Outside of the U.S., share buybacks are less important than dividends.”
Other top-performing international dividend funds include Henderson Global Equity Income Fund (HFQAX) and the Fidelity Global Equity Income (FGILX). The primary difference between these three funds is in how they allocate their assets: The BlackRock and Fidelity funds have close to 50% in North American firms, but the Henderson fund allocates less than 20% to the region.
Risks to Consider: In a global economy, every major nation has a direct effect on every other nation. While diversifying internationally can generate outstanding yields, there is no guarantee this trend will continue. Always use stop-loss orders and diversify across asset classes when investing.
Action to Take –> The easiest way to diversify internationally for yield is with global dividend mutual funds. Your fund choice is dependent on how much exposure you want to North America. If you already hold a portfolio of North American dividend payers, the Henderson fund makes the most sense.
P.S. Did you know there are only 25 stocks in America that yield more than 12%? And most of them aren’t even worth owning. But if you look overseas, you’ll find 93 stocks that yield 12% or more — and many of them are safer than U.S. stocks. Thanks to a much more generous dividend culture overseas, investors no longer have to settle for subpar yields on U.S. stocks — they need only to know where to look. Click here to learn everything you need to know about safely and easily owning international high-yielders, including names and ticker symbols of some of the best high-yielders in the world. Go here to learn more.