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Finding great dividend stocks is one of the holy grails of investing. Even some of Warren Buffett’s most celebrated dividend paying stocks are not that enticing. Shares of Wal-Mart, Coca-Cola and Procter & Gamble only offer dividend yields between 2.5% and 3.5%. All three are among Buffett’s top ten holdings.
The other issue is that all three of these top dividend stocks have underperformed the broader market over the last year. The S&P 500 is up 18% over the last twelve months, outperforming each of the dividend stocks by at least 14 percentage points.
Investors looking to beat the market need to focus on companies that have exposure to higher-growth markets. There’s were the top 3 international dividend stocks come into play.
Some of the most exciting opportunities are overseas. The Chinese government plans to increase spending and open up the economy to foreign investments. That’s a big positive for some of China’s biggest companies.
Another top growth opportunity is the rollout of wireless networks in emerging markets. But international markets also have risks. By using dividend paying stocks, investors can help gain some downside protection.
Outlined below are the top 3 international dividend stocks:
International Dividend Stock #1: PetroChina Company (NYSE: PTR)
PetroChina offers a 3.7% dividend yield. This company will be a big benefactor of China’s renewed focus on driving economic growth. The key is that China is looking to reform the state-owned enterprise sector. PetroChina’s parent company is state-owned China National Petroleum Corp.
Famed investor Jim Rogers is also interested in the country after government authorities have shown a desire to open up China’s economy. Rogers is actually buying shares in China for the first time in over five years.
PetroChina operates China’s largest network of pipelines. Natural gas is also a big positive when it comes to reducing China’s pollution and smog problems. A recent agreement between China and Russia will lead to a large inflow of gas into China, which will boost PetroChina’s volumes.
International Dividend Stock #2: China Mobile Ltd (NYSE: CHL)
China has been the largest smartphone market for nearly three years. The market continues to show growth, with active smartphone users hitting 700 million as of the end of 2013. The growing middle class is helping spur smartphone penetration across the country.
Of all the smartphones sold during the fourth quarter of last year, over 40% were to people purchasing their first smartphone. The best opportunity for China Mobile is the ramping up of the 4G rollout in China. By the end of 2014, the company expects to have 4G coverage in all key cities across the country.
China Mobile offers a 3.8% dividend yield. Its current dividend payout ratio is 43%. It plans to keep this payout steady this year.
China Mobile also has a strong cash position that means it should have enough capital for infrastructure buildup and possibly overseas expansion. The company has made investments in Hong Kong and Pakistan in the past. It has nearly $60 billion in net cash (cash less debt). That covers over 30% of its market cap.
International Dividend Stock #3: Vodafone Group PLC (NASDAQ: VOD)
U.K. based Vodafone is one of the world’s largest mobile phone companies. Vodafone is market share leader by revenues in many of its key markets. It generates about 70% of its revenues from Western Europe.
It makes the list of top international dividend stocks with a 7.1% yield.
After unloading its 45% stake in Verizon Wireless, Vodafone has been a hot topic in merger and acquisition talk. AT&T was rumored to be looking at Vodafone, but it told U.K. authorities that it didn’t intend to bid for Vodafone. Based on a technicality, AT&T cannot re-approach Vodafone about a buyout until later this summer.
Shares of Vodafone are down 14% year-to-date as AT&T failed to submit a bid.
With AT&T’s pending purchase of DirecTV, it’s questionable as to whether AT&T could also pull off a Vodafone buyout. In the meantime, Vodafone is focusing on building up its own business.
Vodafone bought Spain’s largest cable operator, Ono, earlier this year. Vodafone also recently announced a new partnership with Rogers Communications. Rogers is Canada’s largest wireless company. The partnership will allow the two telecoms to increase the type of services they offer to their customers.
Even with its robust 7.1% dividend yield, its payout ratio is only 33%. Meaning, it looks able to continue investing in its business while paying its superior dividend.
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The current low-rate environment is a nightmare for income-seeking investors. But it’s also worrisome that the top dividend stocks in the U.S. are underperforming the market.
The top 3 international dividend stocks above are growth and income stories. This comes as they have exposure to high-growth markets, with relatively high dividend yields. Income and growth is a solid combination for investors looking to build wealth.
Mega-dividends
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