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10 Dividend Stocks With International Flavor

Pros and cons of international dividend stocks

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Unilever is a prime example of this situation. There are two ADRs trading on NYSE. The Netherland based Unilever N.V. trades under ticker (UN). The UK based Unilever PLC trades under ticker (UL). Investors in both stocks get exactly the same dividends. The only difference is that investors in Unilever NV (UN) are subject to a 15% withholding tax, whereas investors in Unilever PLC (UL) are not. US investors still need to pay taxes on international dividends received however, if paid in taxable accounts.

In addition, some countries do not levy withholding taxes on dividends that are received in retirement accounts, such as Roth IRA’s for example. The prime example includes Canada, which usually withholds 15% from dividends paid to US residents at source. However, if you placed those securities in retirement account, Canada would tax these dividends.

Investors in international equities also need to be aware of the fact that these companies are likely not following US GAAP accounting rules. The whole world seems to have adopted IFRS, albeit it doesn’t seem to have a very consistent implementation. It seems as if each country has managed to implement its own version of IFRS. In addition, investors purchasing foreign shares on international exchanges might find it difficult to open brokerage accounts, wire funds in and out and need to be aware of taxation of dividends and capital gains.

For example, Chinese markets are mostly closed to US investors. This means that you cannot go and purchase any Chinese stock that you wish. Other countries have currency controls in place, and might limit the amount of funds you can convert back to US dollars.

In conclusion, while there might be some benefit to receiving international dividends, there are also a lot of cons that investors need to be aware of.

In general, I try to purchase US multinationals with long histories of dividend increases, which also have global operations. I have found that a large portion of US dividend companies revenues are derived from international operations, in some cases more than 50%. As a result, I do not have to deal with currency volatility, foreign withholding tax rates, setting up brokerage accounts in 20 different countries and international accounting rules.

For example, when I looked at the ten largest components of the S&P 500 index, I found out that they generate approximately 50% of their revenues from outside the US in 2012. This is significant, and it should probably make you think twice before using measures such as comparing current market capitalization to US GDP to past values of this indicator, as a tool that has any relevant predictive value.

Full Disclosure: Long UL, VOD, NSRGY, XOM, JNJ, CVX, PG, WFC

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