International markets are still one of the most interesting places to invest. But what’s really great about international stocks is their superior dividend yields.
The S&P 500 average dividend yield is under 2%. Many international companies are offering yields twice, and even triple that.
Over the last three months the S&P 500 Dividend Aristocrat index (those stocks in the S&P 500 that have increased their dividend for 25 years or more) is up 4.4%.
Meanwhile, the International Dividend Achievers index (international companies listed in the U.S. with at least five years of dividend increases) is up 7.4%.
The international market’s top dividend stocks appear to be outperforming those in the U.S. That is a trend that’s sure to continue as many of the overseas economies continue to grow faster than the U.S.
Here are the top three dividend stocks for capitalizing on international markets:
No. 1: British American Tobacco (NYSE: BTI)
This international tobacco company offers an impressive 5% dividend yield, which is more than you’ll get from its U.S. counterparts, such as Reynolds American or Altria.
The key is that British American Tobacco still has access to markets where tobacco consumption is large and growing. This comes in part from its exposure to emerging markets.
Trading at a P/E ratio of just 17.5 also makes it one of the more affordable tobacco companies from a valuation perspective. British American Tobacco still has a 42% stake in Reynolds American. It will invest $4.7 billion to keep that level of ownership as Reynolds American acquires Lorillard.
British American Tobacco gained the 42% ownership of Reynolds in a 2004 merger. It has been unable to boost its ownership of Reynolds, but that will change after July 30. With a market cap of $113 billion, British American Tobacco is still much larger than a combined $50 billion Reynolds American-Lorillard market cap. British American Tobacco could be interested in boosting its Reynolds American stake.
The other part of British American Tobacco’s growth story is e-cigarettes. It introduced its e-cig, Vype, last year and is investing large amounts in research and development, as well as marketing, to drive the product into new markets.
No. 2: AstraZeneca (NYSE: AZN)
This London-based drug company has been one of the best performers in the industry over the last year. This comes as Pfizer has made several attempts to buy the company. Pfizer’s final offer in May for AstraZeneca was for roughly $92.50 per share. AstraZeneca wanted a price closer to $100 and ultimately rejected the offer. AstraZeneca shares currently trade around $75.
Given that AstraZeneca is domiciled in the U.K., it could still be an attractive takeover target for a U.S. pharma company seeking favorable tax structure.
While this pharma company’s 3.7% dividend yield might not seem high, just compare it to your other options in the drug maker industry. This includes the likes of Johnson & Johnson, Pfizer, Merck, Bristol-Myers Squibb and Eli Lilly.
The beauty of AstraZeneca is its strong portfolio of products related to gastrointestinal, cardiovascular, respiratory, oncology and neuroscience issues. Its top products include the cholesterol drug Crestor, acid reflux drug Nexium and asthma drug Symbicort.
At the end of last year AstraZeneca bought up Bristol-Myers’ global diabetes business for $2.7 billion. This should go a long way in giving the drug company a strong presence in emerging markets.
No. 3: Banco Santander (NYSE: SAN)
This Spanish bank offers a 6.5% dividend, which is well above what you’ll get from other foreign banks. The likes of Credit Suisse and HSBC only offer dividend yields of 2.7% and 3.9%, respectively.
The key issue for Banco Santander is that Europe has been a tough place to invest, given the slow economy and debt concerns. Thus, many of the banks there have been shunned. However, Banco Santander isn’t just a major player in Spain; it also has exposure to the emerging economies in South America and Latin America.
As well, the bank’s earnings finally look to be set to grow. Earnings have fell every year since the 2009 financial crisis, but finally showed growth in 2013. From there, earnings are expected to grow by nearly 20% in 2014 and 2015. Its P/E ratio based on next year’s earnings estimates is 13.2, which also happens to make it one of the lowest in the foreign bank industry.
The international markets are offering investors a number of compelling opportunities. But what’s more is the income aspect. International dividends look to be superior to those in the U.S. and the 3 dividends above are great for capitalizing on international markets.
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