VYMI - 12 Top Dividend Stocks To Buy In The Current Market Environment

Summary

• With the dollar still strong and inflation fears still looming, now is an especially good time for US investors to buy more foreign dividend stocks.
• US investors should also consider tax advantages of splitting international dividend stock exposure between taxable and tax-sheltered accounts based on source country.
• In this article, I share a list of 12 relatively high yielding dividend stocks across 7 countries I'm buying or considering for that risk and tax diversification in today's market.
• Many of these stocks have a current dividend yield in the 3.5-5% range, with further dividend growth seen as a way of keeping up with inflation and possible dollar devaluation.

There are many lists of top dividend stocks out there, but my focus is on non-US stocks, and now is an especially good time for investors holding strong US dollars to buy more of these high yielding foreign stocks. Like Coke and Pepsi, or Canon and Nikon, I often find that many of the best stocks come in pairs, and in this article I share six pairs of non-US dividend stocks I think US investors should consider adding to at current market yields. Before I present those six pairs of stocks, I will first explain why US investors should want to manage buying dividend stocks like these directly rather than via a fund or ETF.

Foreign Dividend Stocks: Tax Considerations

There can be significant tax advantages in buying foreign dividend stocks directly rather than through an ETF like the Vanguard International High Dividend Yield ETF ( VYMI ). Many investors already know that it is generally better to hold US dividend stocks in your IRA/401k while holding a fund like VYMI in your taxable account in order to take the foreign tax credit on taxes withheld by foreign governments on those dividends. We can take this one step further by holding dividend stocks from countries with high withholding taxes in our taxable accounts and those with low withholding taxes in our IRA/401k accounts. I am unaware of any currently available US fund or ETF that splits foreign dividend stocks by high tax and low tax countries, so for now, I do this tax management by directly buying foreign dividend stocks in the optimal account to do so. More details on this tax management are beyond the scope of this article, but if this is a subject you are interested to know more about, leave a comment below and I will consider a future article on it.

Pair #1: British Addictive Consumer Goods

I start the list with two core holdings of The Expat Portfolio , British multinationals Unilever PLC ( UL ) and British American Tobacco ( BTI ). Both of these make staple consumer products that are used around the world in both developed and emerging markets almost every day, and even the former has several products some may consider addictive.

Unilever's dividend and financials have been reported in Euros since the unification of the Dutch and British entities, and have remained constant at 42.68 Euro cents for the nine straight quarters since that unification. Some have criticized UL for this saying that disqualifies it from being a dividend aristocrat, but I continue to see it as a very solid 3.6% yield which is very likely to grow at least the rate of global inflation long term.

BTI, on the other hand, has increased its dividend to 230.9 British pence per share , payable in four quarterly installments, a token increase of about 2 pence per share from the year before. This gives BTI a dividend yield of 6.9%, significantly higher than UL, and this can be seen as a risk premium for the many challenges to the smoking tobacco business over the coming decade, and whether any of BTI's other businesses can make up for any declines in the profitable cigarette business. As background though, I think this following chart of BTI's revenue growth over the past 25 years may surprise some younger readers who thought smoking was a thing of the past.

Pair #2: German Cars

My second pair of dividend stocks is that of two German car brands US based investors will still be very familiar with: Bayerische Motoren Werke or "BMW" ( OTCPK:BMWYY ) and Mercedes-Benz Group ( OTCPK:MBGYY ).

BMW's dividend has been a lot more cyclical than many investors would like, having risen from 1.30 to 4.00 Euros per share from 2010 to 2017, before declining three straight years down to 1.90 in 2020, and then jumping to 5.80 Euros per share in 2021. I expect the average dividend over the next few years to be closer to 4.00 Euros per share, which is still an attractive 4% yield at the current share price around 100 Euros per share, though with a lot more volatility than a ride in an i3 electric vehicle .

Mercedes' dividend also took a big dip in 2019-2020, though the site seems clearer about that being the group maintaining a payout ratio of around 40% of earnings. I give myself a margin of safety and assume a 3.50 Euro dividend going forward, which provides an attractive 4.6% yield on a 75 Euro share price.

Pair #3: Swiss Drugs

Moving south of the border to Switzerland, we see a unique market where two world class pharmaceutical companies happen to be the second and third largest stocks, together making up almost 1/4 of the iShares MSCI Switzerland Capped ETF ( EWL ). Those two companies are Roche ( OTCQX:RHHBY ) and Novartis ( NVS ), which are names many Americans are less likely to know as consumers or employees and more likely as patients or through drug advertisements.

Roche delivered very strong dividend growth in the 2000s, from paying 1.45 Francs per share in 2002 to 7.35 Francs per share in 2012. This dividend growth rate has slowed over the past decade, with the dividend per share having only risen to 9.30 Francs per share by 2021, but the pattern remains that this is a company that has been raising its dividend every year. I expect dividend increases over the next few years will continue to be modest, but I plan to hold this name as long as the yield doesn't fall too far below 3%.

Novartis similarly has a long history of increasing its dividend , and at around 80 Francs per share, the forward-looking dividend yield on NVS is closer to 4% than 3%. Many US-based investors may also prefer NVS because it is exchange traded, as opposed to RHHBY which trades OTC.

The dividend growth histories of Roche and Novartis are especially impressive when you consider that both are in Swiss Francs, a currency with a solid trend of appreciation over the past 50+ years. Before 1971, the Bretton-Woods era exchange rate was a little over 5 Swiss Francs to the dollar, versus now when one Swiss Franc costs about $1.08.

Pair #4: Australian Miners

Heading much further south and to the other side of the world, we look at the industry that supplies all the materials we need to build all those cars and drug labs, and that of course is the metals mining industry in Australia. The largest miner down under is BHP Group Limited ( BHP ), and the second one on my list there is Fortescue Metals Group ( OTCQX:FSUGY ).

I last covered BHP at the end of 2021 , and arguably it was one of my best calls going into 2022, in part because I was prepared for a dividend cut from around $6 in 2021 to $2.50-$3.50 in 2022, and instead I got a dividend hike to $6.50 in 2022. BHP's dividends tend to be a round number in US dollars and an odd number in Australian dollars, so I find it easier to simply track this dividend here on Seeking Alpha rather than on the BHP website . As in 2021, I prefer to err on the side of caution and be prepared for BHP to cut its annual dividend rate to $2.50-$3.50 per share next time iron ore prices slump, still providing a 4-5.5% yield on the current share price around $63 and see any hike or lesser cut as a bonus.

Fortescue's website is a little less user-friendly for those trying to track FSUGY's dividend, but the dividend is a round number in Australian dollars rather than BHP's baseline of US dollars. The February 2023 dividend announcement was that this semi-annual dividend will be 75 Australian cents per share, so I put a range of A$0.75-1.50 per share per year as a conservative estimate for the dividend to expect from this stock. On an A$23 share price, that's a healthy yield of 3.3-6.5%.

Pair #5: Asian Banks

Back up to the Eurasian mainland, I'm finding many financials at some of the most attractive levels I've seen in many years. That said "Asian banks" is still an extremely broad and diverse sector, with banks in India yielding less than 1% to some showing up with double digit yields on some screens. For this list I'm picking two dividend names in the middle of the yield and risk spectrum: Singapore's OCBC ( OTCPK:OVCHY ) and Korea's Shinhan Financial Group ( SHG ).

Back when I had a company account with OCBC, I joked that the acronym, which officially stands for "Oversea-Chinese Banking Corporation", might have more accurately been "Over-Charging Business Customers". I since switched that account to DBS, and in my experience, it is more pleasant to be a customer of DBS, but more lucrative to be a shareholder of OCBC. Last year we got a big dividend increase to 68 Singapore cents per share, up from only 53 cents per share in 2021. This is the kind of "dividend momentum" I like to see on a solid dividend stock like this still yielding more than 4%.

Across the Asian continent in Korea, there are also a few banks to choose from, but I chose SHG because it at least has dividend information on its website , which I could not find for its competitor Woori Financial. The website is unfortunately incomplete and does not show SHG's final dividend of 865 Korean Won per share last year, making its total 2022 dividend 2,065 Won, which is over a 5% yield on a 39,000 Won share price. I see this 2,000 Won per year per share dividend as a stable base for my return on this name, with any growth as an upside bonus.

Pair #6: Japanese Shipping

Finally, I wanted to share a sector I consider highly speculative: Japanese shipping. The two stocks I'm looking at here are Nippon Yusen Kabushiki Kaisha ( OTCPK:NPNYY ) and Mitsui O.S.K. Lines ( OTCPK:MSLOY ).

I am interested in looking at this space mostly for two reasons:

1. I like ships, and
2. The Bank of Japan keeping 10-year government bond yields at 0.5% still gives capital intensive sectors like shipping a significant funding cost advantage over those in other markets where borrowing costs are already 4% or higher.

The below chart shows how significant the difference between long-term borrowing costs is in Japan (purple) versus in the US (orange) and across the Eurozone (blue). Japanese rates have long been lower than in other developed markets, but for the two year period around the COVID-19 pandemic, European borrowers had the opportunity to borrow at long-term interest rates as those in Japan. There is a big macro question around the Bank of Japan, similar to that around the US Federal reserve, about how much longer rates can remain so low before Japanese inflation becomes unbearable, but for now, this is probably the time for capital intensive Japanese companies to borrow long-term at these rates while they can.

The historic dividend history charts of both Nippon Yusen and Mitsui O.S.K almost look more like charts of disease outbreaks or celebrity search frequencies than dividends of a shipping company, which is why I put these two stocks on the far speculative end of my list today. For both stocks, I think it's fair to expect a long-term average annual dividend of 140 yen per share, about 1/3 of peak levels, which with both shares trading around 3,500 yen, is around a 4% yield. The upside of the dividend remaining as high as it is for a few more years of course would be impressive, but these stocks would only be for those not afraid of the risk that these stocks will go back to paying dividends of only 7 yen per share per year. As you should notice in my disclosure, these are also the only two stocks I haven't actually put any money into yet, just ones I'm watching out of curiosity.

Conclusion

This quick "world tour" of dividend opportunities was meant to highlight some dividend stocks in many markets I believe many Seeking Alpha readers don't spend enough time looking at. I also hope the links to the dividend sources made you more comfortable understanding dividend quality of different companies around the world, and even excited about diversifying your portfolio to increase the share of dividends you receive from different currencies.

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