In any long-term diversified portfolio, international stocks not only have a place, they should be represented by as much as 10% to 15% of your investment.
The reason is not merely diversification, but because international stocks do not always correlate directly to the performance of the U.S. market. You want to have stocks that aren’t correlated to smooth out volatility.
Investors can be afraid of international stocks, as if they aren’t as safe from a political, reporting or regulatory perspective as they are here in the United States. Political risk can be very real with international stocks, and significant cultural differences can present an additional risk when trying to evaluate securities.
Look, I would be very cautious investing in China, Russia or Africa. As I’ve mentioned in many articles about Chinese stocks, China is opaque. We just found out that Anbang Insurance Group, a Chinese conglomerate was seized by the government.
Still, international exposure is necessary. But there are many international companies that you will find palatable because you know their products, and you know their name. Plus, they pay pretty good dividends to boot.
International Dividend Stocks to Buy: GlaxoSmithKline (GSK)
Dividend Yield: 5.9%
You certainly know the name GlaxoSmithKline plc (NYSE:GSK). As investors, we aren’t going to freak out about a U.K.-based company, right? We also know it is an $88 billion pharmaceutical company.
It has four divisions: Pharmaceuticals, Pharmaceuticals R&D, Vaccines and Consumer Healthcare. Besides its huge portfolio of proprietary pharma drugs, it has other products you certain know: Otrivin, Panadol, parodontax, Poligrip, Sensodyne, Theraflu and Voltaren.
It also has consumer products, such as drinks and foods, toothpastes, toothbrushes, mouth rinses, medicated mouthwashes, gels and sprays, denture adhesives, and denture cleansers.
GSK invented NicoDerm and has more than three dozen other products in development. It’s no wonder GSK has billions of cash on the balance sheet, and more than enough cash flow to pay its dividend, presently at 5.9%.
International Dividend Stocks to Buy: Diageo (DEO)
Dividend Yield: 2.6%
Do you like booze? Enjoy knocking back a few from time to time? Then hop on board Diageo PLC (NYSE:DEO). We know for a fact there will always be some baseline demand for alcohol. No matter how healthy people claim they want to be, they will always give in to alcohol.
You know many of Diageo’s brands, including Johnnie Walker, Crown Royal, J&B, Buchanan’s and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.
Why is alcohol a smart investment? Because it is a social product. When people get together, if one person buys, others tend to buy-in also. Marketing for alcohol centers around creating an experience, and creating and perpetuating social circles. In general, it is a good play because human social behavior is often centered around the consumption of alcohol.
DEO stock is being pushed higher thanks to increased efforts in flavored alcohols. DEO is consistent and reliable, and pumps out more than $3 billion annually in free cash flow, returning about 65% of that to shareholders in the form of its 2.57% yield.
International Dividend Stocks to Buy: Unilever (UL)
Dividend Yield: 3.2%
Unilever plc (NYSE:UL) is a familiar, international presence with consumer products across the spectrum. You certainly know all of the following: Dove, Knorr, Axe, Magnum, Lipton, Surf, Becel, Lux, Metadent, Pepsodent, Country Crock, Persil, Popsicle, Ben & Jerry’s, Breyer’s Vaseline and many more.
Unilever makes a ton of money. The company reported good numbers in its fourth-quarter earnings, with sales up 3.5%, operating margins up 110bps, earnings up 11% and free cash flow of 5.4 billion euros.
UL is concentrating on new channels: health and beauty, direct to consumer, e-commerce, and “experience stores.” By the way, UL is shoring up its pension, with a deficit of 3.2 billion euros now down to just 600 million. That means money to pay the dividend won’t be diverted.
UL only has two years of consecutive increases under its belt, but it pays a 3.2% dividend, which you could do worse than.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].