One approach to long-term investing that doesn’t get as much attention is global dividend investing in stocks, ETFs, and mutual funds. Where many investors focus on hot growth ideas in the US (maybe even just on the Nasdaq exchange) - they might not buy anything beyond momentum technology stocks like Apple (ticker symbol: AAPL), or cloud computing and big data stocks like EMC Corp (ticker symbol: EMC), International Business Machines (ticker symbol: IBM), or the recent Splunk IPO (ticker symbol: SPLK), gold or other commodities (like the GLD etf), some explosive penny stocks, or the next promising biotech. Or maybe you’re one of those investors who waited for the Facebook IPO (ticker symbol: FB) to get in on that social media growth story, and perhaps even traded binary options on the opening day’s market capitalization. The problem with these strategies is that -- while there is great reward if you are correct -- the extraordinary risks have to be managed. Most successful investors buy over a period of many years and accumulate wealth rather than have one great trade or investment that sets them for life in an instant.
GLOBAL DIVIDEND INVESTING
The idea with a global dividend investing or international growth and income strategy is that individual investors can take advantage of growth opportunities around the globe with companies that consistently return a portion of their profits back to shareholders in the form of quarterly, semi-annual, or annual dividends. These can be domestic corporations in the United States that operate their businesses throughout the world, or these can be foreign or international companies in developed, emerging, or frontier markets. Through these investments, individuals get exposure to solid growth industries, sectors, and regions of the world, all while earning regular dividends.
HOW TO INVEST Globally: Stocks, ETFs, and Mutual Funds
There are generally three ways to invest for international growth and income -- mutual funds, ETFs (exchange traded funds) or individual stocks. These investments can return varying amounts of ordinary income (quarterly, semi-annual, or annual dividends) and short term and long term capital gains (through mutual fund and ETF liquidations). For many long-term investors, especially those building up retirement accounts, all of these distributions can be reinvested for compound effects.
Remember to always look at your investments in total, taking into account any holdings you may have that may be disproportionate to your overall mix. For example, if a “global” fund (with US exposure) has a lot of General Electric (ticker symbol: GE) because of its worldwide footprint, make sure you are not overweighting GE through a number of your other holdings, indexes, or direct stock purchases in GE. This might be a case for buying International Growth and Income Funds, or region ETFs, which often exclude US stocks.
So here are a number of examples of this style of global dividend investing. The approximate yield is included according to public data when this article was published.
Global Dividend Investing: Mutual Fund Ideas and Examples
T.Rowe Price International Growth & Income (TRIGX): This fund is considered a foreign large value fund comprised of about 120 stocks, including such well known names as Royal Dutch Shell, Vodafone, Novartis, Nestle, Nissan, and Honda in its top 25 holdings. The gross expense ratio for this $4.74B fund is about .87 percent, and it has a yield of about 2.64%.
Matthews Asian Growth and Income Fund (MACSX): With holdings from China, Hong Kong, Singapore, Taiwan, Australia, and Thailand in the top ten holdings, this well-known large cap blend fund gives US investors access to some companies they might not have ever heard of -- including some Asian financials, telecom services, industrials, and consumer discretionary stocks. Since the focus is on Pacific Asia (excluding developed Japan), the fund holds stocks like Singapore Technologies Engineering, China Petro, HSBC Holdings, Taiwan Semiconductor, China Mobile, and others. The gross expense ratio for this $2.66B fund is about 1.12 percent, and it has a yield of about 2.74%.
Global Dividends: Exchange Traded Fund (ETF) Ideas
First Trust Dow Jones Global Select Dividend ETF (symbol: FGD): This $174M exchange traded fund in the world stock category is made up of a number of communication services, utilities, financial services, and industrial companies such as Telecom Corp of New Zealand, Zurich Insurance, RWE (the German electric and gas company), and France Telecom, among others. According to Yahoo finance this First Trust DJ Global ETF yields 4.64%.
WisdomTree Emerging Markets Equity income ETF (symbol: DEM): This $3.64B exchange traded fund in the diversified emerging markets category is made up of a number of financial services, communication services, technology, and basic materials companies such as Taiwan Semiconductor, AMBEV, Santander, Bank of China, and Turk Telekomunikasyon, among others. According to Yahoo finance this WisdomTree Emerging Market ETF yields 4.02%.
Global Growth and Income: Individual Stock IdeasIf you would rather buy a global dividend payer directly and not hold it in a basket of stocks like a mutual fund or ETF, you can choose individual stocks for your retirment accounts, Roth IRA, or other portfolio account. It’s also possible to purchase foreign stocks through DRIP and DSPP (dividend reinvestment and direct stock purchase) plans like JP Morgan’s ADR program. Of course you could easily buy US corporations like Caterpillar (ticker symbol: CAT) or Kraft Foods (ticker symbol: KFT) that earn a significant portion of their revenues and profits overseas, but it's also interesting to look at foreign stocks.
China Mobile Ltd. ADR (ticker symbol: CHL): Many countries will never bother with the ‘land-line’ infrastructure required to have a telephone in every home. With China’s huge population, its wireless cell phone and smart phone markets have been exploding with growth related to the urban migration of China’s younger population. What better way to have direct exposure to China than through its cell phone industry. China Mobile is a $225B market cap company that pays a 3.85% yield according to Google finance.
Banco Santander ADR (ticker symbol: STD): Sure Spain is now in a recession, but Santander is a global bank with exposure to Europe, the UK, the United States (through its Sovereign Unit), and Latin America with its Brazilian and Chilean divisions. The stock has been sold off largely on the fears of the Spanish economy, but according to some reports no more than 10% of its business comes from Spain. Banco Santander is a $57B market cap corporation with a variable dividend throughout the year -- currently at 13% according to Google finance. Even if the dividend is cut (which the company claims it won’t do), this would be a solid income stream at half the yield.
Remember as the market pulls back yields will appear higher and it often becomes possible to find an entry point for any of these investments that will ensure growth, through capital appreciation, and consistent income through dividends. Any of these investments would trump savings in a money market account, and give the added benefit of capital appreciation. But always judge these companies on their underlying business and do not simply chase high yield. Be sure to consult your own advisors before investing any risk capital in these or other investments.
(Disclosure: author owns CAT, KFT, GE, STD, AAPL, IBM, and TRIGX at the time of this writing.)