Ten Foreign Stocks With No Dividend Withholding Tax To Consider

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One of the important factors that U.S. investors investing in foreign stocks have to consider is the withholding tax on dividends levied by the country where the foreign company is based. Governments charge this tax on dividends paid out to foreigners in order to generate additional tax revenues.However there are a few countries which do not levy this tax on US investors. So investors hunting for foreign dividend stocks can consider investing in some of the companies from these countries.

Investing in foreign stocks should not be avoided just because of the dividend withholding tax.This is because generally US investors can recover the dividends they paid to foreign governments in the form of a tax credit when they file their tax returns each year. But this credit is easy to claim only when the amount claimed is under a certain limit such as $600 for joint filers.If an investor paid a much higher amount like for example $10,000 in dividend withholding taxes to foreign governments and wants to apply for credit, then they have to file the complex IRSForm 1116.

The number of countries that have no dividend withholding tax for US investors continues to decline as more and more governments are looking to ding foreigners with this tax. India, Singapore and UK are three countries that do not charge this tax for American investors. Ten ADRs from these three countries are listed below with their current dividend yields. Dividends paid out by only UK corporations have a withholding tax rate of 0% . Dividends paid by UK REITs have a 20% tax.

1.Company: DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 4.80%
Sector: Banking
Country: Singapore

2.Company: United Overseas Bank Ltd (UOVEY)
Current Dividend Yield: 1.84%
Sector: Banking
Country: Singapore

3.Company: Singapore Telecom (SGAPY)
Current Dividend Yield: 7.37%
Sector: Telecom
Country: Singapore

4. Company:Keppel Corp (KPELY)
Current Dividend Yield: 4.49%
Sector:  Industrial Conglomerate
Country: Singapore

5.Company: HDFC Bank Ltd (HDB)
Current Dividend Yield: 0.70%
Sector: Banking
Country: India

6.Company: ICICI Bank Ltd(IBN)
Current Dividend Yield: 0.68%
Sector: Banking
Country: India

7.Company:Diageo PLC (DEO)
Current Dividend Yield: 2.99%
Sector: Beverages
Country: UK

8.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 4.09%
Sector: Pharmaceuticals
Country: UK

9.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 4.06%
Sector: Wireless Telecom
Country: UK

10.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.34%
Sector:Tobacco
Country: UK

Note: Dividend yields noted above are as of Oct 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Which Sectors Are Best For Dividends Among U.S. Stocks?

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The U.S. equity market is one of the largest and most liquid markets in the world. An investor looking to invest in US stocks is faced with a huge universe of companies trading on many markets with the main exchanges being the NYSE and NASDAQ.  The NYSE is home to 1,519 U.S. companies according to the latest NYSE data and another couple of thousand trade on the NASDAQ.

One way for investors to hunt for dividend stocks is to use the S&P 500 Index which is considered as the barometer of the U.S. economy. The index provides 500 companies from many sectors to choose from. Some sectors are traditionally preferred for dividends over others. For example, income investors go with utility stocks then technology stocks for the obvious reason that utility sector is stable and is known to offer steady dividends and slow growth. On the other hand most companies in the technology sector do not even pay dividends as they focus on growth.

The current yield on the S&P 500 is 2.07%. Investors searching for dividend stocks can consider stocks in the telecom, utility and consumer staples sector.The two charts below from a FactSet research report published last month show that they have higher dividend yields than the S&P 500. The telecom sector has a dividend yield of over 4.0%. The three sectors also have higher payout ratios than that of the S&P 500.

From the report:

Dividend yield is calculated by dividing the trailing twelve-month dividends per share figure by yesterday’s closing price. Ten-year average figures compute the average based on the dividend yield at the quarter-end.

a) Dividend Yield by Sector – Most Recent Quarter

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 Dividend Yields by S&P 500 Sector

 

b) Dividend Payout Ratio (Earnings based) – Trailing Twelve Months

Dividend Payout Ratio by S&P 500 Sectors

The Top Ten Companies identified in the FactSet report are listed below with their current dividend yields:

1.Company:Transocean Ltd. (RIG)
Current Dividend Yield: 10.42%
Sector:Energy

2.Company:AT&T Inc. (T)
Current Dividend Yield: 5.40%
Sector: Telecom Services

3.Company:TECO Energy, Inc. (TE)
Current Dividend Yield: 4.81%
Sector:Utilities

4.Company:Noble Corporation PLC (NE)
Current Dividend Yield: 7.69%
Sector: Energy

5.Company: Southern Company (SO)
Current Dividend Yield: 4.54%
Sector:Utilities

6.Company:Reynolds American Inc. (RAI)
Current Dividend Yield: 4.50%
Sector:Consumer Staples

7.Company: Philip Morris (PM)
Current Dividend Yield: 4.65%
Sector:Consumer Staples

8.Company:Altria Group, Inc.(MO)
Current Dividend Yield: 4.56%
Sector:Consumer Staples

9.Company: Consolidated Edison, Inc. (ED)
Current Dividend Yield: 4.15%
Sector: Utilities

10.Company: Entergy Corporation (ETR)
Current Dividend Yield: 4.19%
Sector:Utilities

Note: Dividend yields noted above are as of Oct 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Source: Dividend Quarterly, September 15, 2014, FactSet

How Much Did National Bank Of Greece Stock Fall In The Past 5 Years?

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The equity market in Greece plunged last week. In just 3 days the benchmark index fell over 14% including 9% on Oct 15th. The Athens Stock Exchange General Index is down over 19% as of Oct 17. Greece was the main focus of the world a few years ago when the country’s economy  was on the verge of collapse during the sovereign debt crisis.However due to multiple bailouts over the years the country survived but many of the structural problems still linger in the background. So it is not surprising that the equity market can crash over 9% in one day.

National Bank Of Greece(NBG) is the only Greek ADR trading on the US exchanges. The stock is down a shocking 99.37% in the past 5 years according to data provided by Yahoo Finance.

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National Bank of Greece Stock-5 Year Return

Source: Yahoo Finance

NBG is down over 56% year-to-date as of Oct 17th. The bank implemented a 10 for 1 reverse split in May 2013 and another 1 for 5 reverse split in 2011. Despite this the stock closed at $2.47 on Friday.

From an investment point of view, it is better to avoid investing in Greece until some of the fundamental problems are fixed.

Disclosure: No Positions

The Relationship Between S&P 500 Dividends and Dividend Payout Ratio

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Corporate profits in the U.S. are at a record high.Accordingly earnings returned to shareholders in the form of dividends has also reached record levels. For example, the dividends on the S&P 500 as of September stood at $38.49.

Click to enlarge

US Corporate Profits

 

Source: Federal Reserve Bank of St. Louis

However as I have discussed before, the payout ratio of U.S. firms has not increased with increase in profits. In fact they have been declining for a few decades now. So even though companies are paying more in dividends but as a share of the total profits earned the amount paid out to investors is still low and they continue to hoard cash as retained earnings.

The chart below shows the rise in S&P 500 dividends and the dividend payout ratio from 1965 thru Sept, 2013:

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S&P 500 dividends and dividend payout ratio chart

Source:  Will the pendulum swing toward a higher payout ratio?, Crawford Investment Counsel, November 2013

The key takeaway from this post is that just because a company earns higher profit it does not mean it will necessarily share that wealth with shareholders. This is especially true for retail investors who do not have the power to make changes in a company’s operations or management’s policies.

Related ETFs:

  • iShares Dow Jones Select Dividend ETF (DVY)
  • SPDR S&P Dividend ETF (SDY)
  • Vanguard Dividend Appreciation ETF (VIG)
  • Vanguard High Dividend Yield ETF (VYM)

Dislosure: No Postions

Which Frontier Markets Companies Are Multinationals ?

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Up until a few decades ago the term “Multi-National Company” or MNC generally represented Western companies that were true multinationals and operated across the globe. In the recent decades, as emerging countries such as Brazil, Russia, India and China grew stronger economically some of firms from these countries emerged as the new emerging multinationals. A few of these multinationals include Petrobras (PBR) of Brazil, Gazprom(OGZPY) of Russia, Infosys (INFY) of India and China Petroleum & Chemical Corp.(SNP) of China.

Following the footsteps of emerging multinationals, some of the companies in frontier markets are also growing not only domestically but also expanding in markets outside of their home territories. These Frontier Markets Multinationals (FMMs) are have many advantages relative to their developed world peers according to an article by Tomás Guerrero, ESADE Business School in FT beyondbrics blog.

The table below shows the Top 10 Frontier Markets Multinationals (FMMs):

Click to enlarge

Frontier Market Multinationals

Source: Guest post: frontier market multinationals propel growth, FT beyondbrics, Oct 10, 2014

The author noted that the MSCI Frontier Markets Index rose by 26.3% in 2013 compared to the Emerging Markets Index which lost 2.6%.

As most of the frontier market firms do not trade on the US exchanges, one simple way to gain exposure to them is via the iShares MSCI Frontier 100 ETF (FM). Its 127 holdings includes companies such as Zain, Dangote, PetroVietnam, etc. noted in the table above.

The ETF has an asset base of over $786.0 million and the distribution yield as of Sept 30th is 4.69%. The expense ratio is 0.79%. Of the 16 countries represented in the fund, Kuwait, Nigeria and Argentina have the highest allocations.

Though the MSCI Frontier Markets 100 Index gained 26.33% last year, the returns in 2012 and 2011 were 8.60% and -18.63% respectively. While emerging markets performed poorly last year, developed markets performed well with the S&P strongly rising by double digit percentage points.So relative to the US market return last year frontier markets did not outperform by a huge margin.

The dividend yield on the MSCI Frontier Markets 100 Index which is tracked by the iShares MSCI Frontier 100 ETF (FM) was 3.62% at the end of last month. This is much higher than the S&P 500’s dividend yield of around 2.0%.

Frontier markets are not for the faint of heart. They are riskier than emerging markets. Generally frontier market stocks may not be suitable for most of the investors. However investors willing to take huge risks and diversify internationally can consider adding a very tiny part of their portfolio to these markets.Despite the huge gains in 2013 and the high dividend yield, the risks are far too high investing in places like Vietnam, Morocco, Nigeria, etc.

Disclosure: Long PBR