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Even though U.S. blue chips like Hershey (HSY, news, msgs) and Abbott Laboratories (ABT, news, msgs) have helped investors accumulate fortunes, the temptation to look abroad for the world's best dividend stocks remains strong.
Many foreign stocks offer higher dividend yields than their U.S. counterparts. For example, Telecom of New Zealand (NZT, news, msgs) doles out a voluptuous 8.2% dividend, while Qwest Communications International (Q, news, msgs), a provider of voice, data, Internet and video services in 14 states, has a 5.7% dividend yield.
Despite the tremendous opportunities available to generate income from companies abroad, stateside investors need to know about a couple of things before stamping their passports:
- Dividend regularity -- or lack thereof. Foreign-company dividends can indeed be larger than U.S. companies', but they're often less regular in timing and amount. Companies abroad like to pay a target percentage of earnings instead of a certain cash value every year. Don't knock it: Freed from the pressure to lowball their payouts, these companies can pay you more over the long haul.
- Dividend taxation. Foreign countries (except for those in the United Kingdom) can scalp you at their going rate. Still, most countries in which you're likely to invest have tax treaties with the United States, so you can claim a credit for the tax withheld. But here's the rub: Because a credit offsets taxes you would have otherwise paid, it's smart to hold foreign stocks in a taxable account. In other words, skip the IRA if you're going abroad.
Of course, not all foreign dividend stocks are created equal. With the help of the 83,000 investors participating in MSN CAPS, it's easier to separate the wheat from the chaff.
As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals. The ratings and comments from the CAPS community aren't always right, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants.
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The stock's paid a dividend of 26 cents a share in the past 12 months, for a yield of 2.2%. While that dividend yield won't blow your socks off, keep in mind that foreign companies generally pay out a percentage of profits instead of a target dollar amount.
Moreover, National Bank of Greece is expected to increase its payout ratio to roughly 50% of earnings. With the company's strong presence in high-growth regions of southeastern Europe and Turkey, continued earnings growth looks promising.
How will NBG perform going forward? Let's consider a bullish pitch from CAPS player "ghalsey" made in December: "NBG's location in emerging markets, as well as its commanding share of the banking industry in regions that are on the cusp of EU membership, make it a long-term player in International Banking."
Investors should be mindful of this point, however, given Kosovo's recent declaration of independence and the geopolitical fallout it has caused between Russia and Serbia on one side and Western Europe and the United States on the other.
With 315 of 322 CAPS players believing that National Bank of Greece will outperform the Standard & Poor's 500 Index ($INX) going forward, it's hard to find a good bearish opinion on it. For instance, "grammatoncleric" is bearish on National Bank of Greece simply because it is "foreign banking."
That reasoning may be a bit naïve: Sure, there are some bad banks out there, foreign and domestic, but some are worth considering in this market. National Bank of Greece is one of those banks, though investors should closely consider the higher political risks of the region before investing, especially in the wake of recent news from Kosovo.
What do you think about National Bank of Greece, or any other stock? Make your voice heard on MSN CAPS.
This article was reported and written by Todd Wenning for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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