Finding foreign dividend stocks

Most investors, especially US investors, invest almost exclusively in their own country. There is even a name for this in the investing world, home country bias (see the link here). In many ways it is a quite reasonable and understandable phenomenon especially if you follow a maxim like invest in what you know. I don’t buy into most of the reasons the finance community pushed for investing in foreign stocks, usually revolving around optimal asset allocation, but it is something worth doing. To me its just a matter of opportunity. With the US representing about 40% of world wide market capitalization there is a larger opportunity base out there for income investors who are willing to look outside the US. The first step to investing in foreign dividend stocks is just finding out about them in the first place. This is what I want to address in this post.

Here are a few ways that I use to find foreign dividend stocks.

  1. Screen for foreign dividend stocks listed on the US exchanges. There are many foreign stocks that are listed on the major US exchanges, just on the NYSE, NASDAQ, and AMEX there are about 895 foreign stocks traded in the US, 345 of which pay a dividend. My favorite stock screener is the one at Financial Visualizations – with their screener you can screen for any non-US stock. Here is a link to a screen for foreign stocks traded in the US with a yield above zero. There are many more foreign stocks traded in the US, on the OTC market, but most screeners don’t include these stocks.
  2. Look at the holdings of the major foreign dividend ETFs. This link at ETFdb does a nice job summarizing the different foreign dividend ETFs. For example, you could pick the Powershares Int’l Dividend Achievers ETF (PID) and look at its top holdings as a start for further research. I like this method in particular because some of the work has already been done for me.
  3. Follow the big investors. Pick a top or favorite foreign mutual fund and look at its top holdings and read their quarterly and annual reports for the reasons they invested in the stocks. It doesn’t even have to be a fund solely dedicated to dividend stocks. Many value funds also invest in dividend payers. For example, Thornburg International Value has a great track record and invests in many dividend payers. See their top holdings here.
  4. Blogs and newsletters. If you subscribe to any investment newsletters, particularly ones focused on dividend investing, then they probably will recommend some international dividend stocks. In the past, I have subscribed to Morningstar’s Dividend Investor and Motley Fool’s Income Investor and both recommend foreign dividend stocks from time to time. There are also some blogs out there focused on foreign stocks. I like a blog called Top Foreign Stocks. They also have lists of foreign stocks that trade in the US OTC market (also called pink sheets).
  5. Leverage your own experiences. Most of us have traveled to foreign locales, or even lived in them. Leverage those experiences and research foreign companies in the big industry sectors in those countries. For example, you could look into the big oil companies, telecom companies, consumer goods companies in individual foreign countries. While I lived in Hong Kong I learned about and invested in quite a few Hong Kong based companies. One of my favorites for example was CNOOC, which trades in the US under the symbol CEO.

These are just a few ways I use to find out about foreign dividend stocks. Sometimes its even through the mainstream media in a news paper article. If you have any other ways please let me know. Of course, this is just the first step in the process. The hard part comes next, picking a great foreign dividend stock to invest in. I currently have two foreign dividend payers in my portfolio, Fairfax Financial (FRFHF.PK) and National Grid (NGG), and am looking for more. In a future post I’ll look at some of the challenges for US investors buying foreign stocks, two of which are tax withholding and trading fees. Stay tuned.


Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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5 Responses to Finding foreign dividend stocks

  1. Larry Lanfred says:

    New subscriber. Congrats on clarity and pertinence of your reports.
    Question: Wouldn’t it be helpful to include DEBT obligations as part of your analyses,particularly in re REITs. Ratios of short-term debt to book value and total debt to book would be valuable.

    Look forward to your reports. Larry

    • libertatemamo says:

      Hi Larry. Debt is always one of the things I look at even though I may not have stated it explicitly in a given post. One thing to note is how you look at debt depends on the type of company being looked at. For example, you would not use a measure like short term debt to book for a company like MSFT or INTC. For MLPs the industry uses debt to ebitda as the measure of investment quality. For mortgage REITS, which are very different than real estate REITs, the leverage ratios an be as high as 12 to 1, so they are more akin to banks than operating companies. Traditional measure of debt levels like debt to equity are not really useful for these types of firms. For other, more traditional operating companies the measure like debt to equity, interest coverage ratios, current rations, quick ratios, etc.. are very applicable.

  2. svwashout says:

    I just use Google or Yahoo Finance. You can get leads to related companies if you punch in something to start. Normally I don’t look at dividends but last year I went after some foreign telcos and got some decent returns so far in TSP and TNE. Magyar isn’t working as well (I’ll give it another year) and missed the 311 downspike in TLSYY. This approach also works in big oils and pharmas, but I didn’t see much in the utilities (picked up some RWE on the 311 downspike, let’s see what happens). You have an opinion on STD or is it another one of those “not worth the risk”?

    • libertatemamo says:

      STD is one of the better banks in the world and at least they still pay a good yield unlike US banks. But, like all big banks, the balance sheet is practically incomprehensible and more importantly in the shorter term STD has way too much exposure to Spain and Portugal real estate. And their exposure to the UK is pretty big too. Compared to other risks I can take for similar or better yields STD is not worth the risk.

  3. Pingback: Dividend Hunters… Look Abroad! « Educating, Protecting & Empowering the Investor

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