By David Hunkar:In an article last month, I discussed the continued decline in the dividend payout ratio of U.S. stocks. The following chart shows the historical dividend payout ratio of European stocks based on the MSCI Europe Index. This ratio mostly stays about 40% in Europe and is on an upward trend since mid-2011.
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By David Hunkar: Dividend stocks were mostly ignored by investors during the dot com era of the 1990s. Soaring stock prices of high-tech companies made dividend-payers of traditionally boring industries such as utilities, consumer staples, industrials, etc. unattractive to most investors. However, since the recent global financial crisis, dividend stocks are back in vogue again as yield-hungry investors have rediscovered them.
By David Hunkar: Foreign stocks have traditionally had higher dividend yields than U.S. stocks due to a variety of reasons. While U.S. firms prefer to retain excess earnings for future growth, companies in other countries tend to pay out a higher portion of earnings to investors in the form of dividends. In some countries such as Australia, favorable tax treatment of dividends also encourages firms to payout more.
By David Hunkar: The dividend yield on the S&P 500 is around a measly 2.0%. For investors looking to earn higher income from investing in equities, foreign stocks provide attractive investment opportunities. Generally, foreign stocks have had higher dividend yields when compared to U.S. stocks due to many reasons. The following chart shows that U.S. equities had a dividend yield of just 2% at the end of 2011 while global income stocks had yields of over 5%:
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By David Hunkar: Global stocks fell heavily across the board yesterday. Panic selling in the markets usually presents buying opportunities. Investors looking to deploy capital during uncertain times can buy high-quality dividend-paying stocks at cheap prices.
Some of the reasons for investing in dividend-paying stocks are listed below:
David Hunkar submits: British companies are projected to increase dividend payouts by 10% this year, according to a report by Capita Registrars Dividend Monitor, which expects overall dividend yield to be 4.4% in 2011.
By David Hunkar: When considering dividend-paying stocks, some investors tend to select stocks with high dividend yields rather than the long-term total return. However this is not a winning strategy. Instead of falling into the so-called "yield trap", investors are better off picking stocks based on total return over the long-term, according to a research report by Invesco published earlier this year.
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David Hunkar submits: Most foreign banks have rebounded strongly since the depth of the credit crisis. Some of them have written off all of the losses and have shored up their balance sheets. Investors who avoided bank stocks in the past few months many want to consider adding some of the stronger banks at current levels. Another round of fresh stress tests planned for European banks in June should further raise confidence in this sector.
David Hunkar submits: When picking dividend stocks, in addition to an attractive dividend yield, it is important to select stocks that have high annual dividend growth rate. These two factors will give a better picture about the stocks than going with just the yield alone. The following foreign stocks satisfy the two conditions:Complete Story »