For dividend investors looking to broaden their portfolios beyond the U.S., there are some good opportunities in developed markets like France, the United Kingdom, and Japan.
Attractive Yields and Valuations
Besides attractive yields, these stocks often have cheaper valuations relative to the U.S. market.
International equities, which yield 3.4% on average, trade at 12 times normalized earnings, according to J.P. Morgan Asset Management, while U.S. stocks yield 1.6% and fetch 16 times.
Global Dividend Stocks with Strong Fundamentals
“Global dividend-paying stocks have valuation support, very resilient fundamentals, and their dividends are growing very steadily,” says Sam Witherow, a London-based equity portfolio manager at J.P. Morgan Asset Management.
Dividends Rebound in Europe
Dividends in Europe fell sharply when the pandemic started in 2020, as many banks and other financial firms were forced by regulators to suspend their payouts. But dividends have rebounded strongly since then, up roughly 60% across the board in that region, according to Witherow.
Room for Dividend Recovery
The payout ratio for stocks globally—that is, the percentage of company earnings paid out in dividends—bottomed at about 35% in 2021 and is now in the low 40s, he says. “So, you have got a lot of headroom for a dividend recovery.”
Strong Performance of Higher-Income Stocks
Witherow points out that global “higher-income stocks” have done well overall during the past four 12-month periods following the Federal Reserve’s final interest-rate hike at the end of a cycle, reflecting the “value plus defensiveness” characteristics of those stocks.
Promising Dividend Stocks
Among the stocks he favors are:
- Legrand: A Limoges, France–based maker of electrical equipment, which yields 2%.
- RELX: A U.K. digital media company with a yield of nearly 2%. The company’s payouts are growing nicely, a key feature of any good dividend stock. Witherow expects RELX to grow its dividend at a 9% annual clip over the next five years.
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Legrand’s Diverse Offerings
Legrand, a trusted name in the industry, manufactures a wide range of products such as transformers and switches. These products are specifically designed to cater to the needs of data centers and other clients. Legrand’s commitment to innovation and quality ensures that they provide cutting-edge solutions to their customers.
Japan’s Growing Dividend Market
Japan presents an intriguing opportunity for investors looking to capitalize on dividend growth. In recent years, the country has witnessed a significant increase in dividends and stock buybacks. This can be attributed to the various reforms implemented under former Prime Minister Shinzo Abe.
According to UBS research, the enforcement of the 2015 corporate governance code and the 2014 stewardship code has led to improved governance practices in Japan. This has resulted in a more shareholder-centric governance model, encouraging companies to make better use of capital and generate sustainable growth.
As a result, more Japanese companies are prioritizing dividend payments. The MSCI Japan Index’s dividend yield has experienced fluctuations but has shown a steady upward trend since the turn of the century, reaching approximately 2% recently.
Promising Dividend Opportunities in Japan
Drew Edwards, a seasoned portfolio manager with extensive experience in Japan, notes that the country is adopting a shareholder-centric governance model. This shift encourages management teams to optimize capital utilization and drive growth, often through increased dividend payouts.
One such company worth considering is Astellas Pharma, offering a lucrative dividend yield of 3.9%. Astellas Pharma boasts a diversified portfolio of drugs that cover various therapeutic areas. With the addition of new drugs with substantial growth potential in the pipeline, the company anticipates robust growth in the coming years. Notably, their offerings include innovative medications for cancer and kidney disease.
Exploring International Dividend Opportunities
With Japan’s favorable business climate and the increasing focus on dividends, U.S. investors should consider diversifying their portfolios beyond domestic markets. Japan offers a compelling opportunity for investors seeking stable and growing dividends.