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International stocks tend to get much less coverage in the financial media than U.S. stocks. But in the search for high-quality dividend stocks, investors should not ignore international dividend stocks.
While the U.S. stock markets appear overheated, there is much more value to be found in the international markets, particularly Europe, where stocks remain cheap.
And, investors do not have to sacrifice growth. In fact, certain international companies have better growth prospects than their U.S. competitors, thanks to higher exposure to the emerging markets like China and India.
Let’s review three of the top international dividend stocks for 2018.
Royal Dutch Shell (NYSE: RDS.B)
Shell is an integrated oil and gas giant, based in Europe. Shell is a prime example among international dividend stocks that could be more attractive than U.S.-based industry peers. The U.S. oil giants, Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), both have dividend yields below 4%. Meanwhile, Shell offers a 5.2% dividend payout.
Shell has maintained its hefty dividend, even through the oil and gas industry downturn that took place from 2014-2016. In response to plunging commodity prices, Shell cut $20 billion from capital spending.
Shell’s integrated structure also helped it survive the downturn. In addition to exploration and production businesses, which are highly reliant on the price of oil and gas, Shell has a large refining business. Refining activities are not highly exposed to the price of oil, which helped Shell remain profitable through the downturn.
And, now that oil prices are rising once again, Shell is a major beneficiary. Overall core earnings more than doubled in the first three quarters of 2017, to $11.79 billion. Shell can continue to grow earnings going forward, due to new projects set to come on-line. By the end of next year, the company expects $10 billion of new cash flow each year from its project lineup.
Best of all, Shell has a 5.2% dividend yield, and the company generates more than enough cash flow to sustain the current payout. As Shell realizes growth from new projects, there could even be room to increase its dividend payout.
Diageo (NYSE: DEO)
Diageo is a giant in the alcoholic beverages industry. It manufacturers some of the most popular spirits and beer brands in the world, such as Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, Guinness, Crown Royal, Ketel One and more. Diageo has 20 of the world’s top 100 spirits.
In fiscal 2017, Diageo’s sales rose over 4%, thanks to higher sales volumes and stronger pricing. Diageo’s earnings per share rose 21%, as the company realized margin expansion in addition to sales growth.
Diageo’s strong brands provide the company with the ability to raise prices each year. Combined with global scale, the company is a cash machine: Diageo’s free cash flow increased 27% last year. The company also has a strong foothold in the emerging markets, which gives it an edge over its U.S. based competitors.
More than 40% of Diageo’s annual sales are derived from Asia, Latin America, and Africa. These are all high-growth emerging markets, with rising populations and strong economic growth rates. This makes emerging markets extremely attractive territory for strong consumer brands, such as Diageo. According to the company, international premium spirits will become available to more than 730 million new consumers, over the next decade.
Diageo has a semi-annual dividend, which yields 2.2%. Diageo does not have a very high dividend yield, but its yield still beats the S&P 500 Index average, which is 2%. Plus, Diageo makes up for a relatively low yield, with high dividend growth rates. The final semi-annual dividend payment last year was raised 10% from the same dividend the previous year. High growth from the emerging markets can easily continue to provide for 10% dividend increases each year, enhancing its position as one of the attractive international dividend stocks.
Vodafone (NYSE: VOD)
Lastly, Vodafone is a major telecommunications provider, based in Europe. Like Diageo, Vodafone also has a huge presence in the emerging markets. Approximately 25% of its annual sales come from Africa, the Middle East and Asia.
Vodafone has over 500 million mobile customers, and more than 30 million fixed-service customers. It has high market share, and generates strong cash flow. Currency-neutral revenue increased 2% over the first half of 2017, while EBITDA increased 13% in the same time.
Vodafone’s future growth potential is very attractive, because the company is about to take a huge step forward in India, a key emerging market. Last year, Vodafone announced a huge merger between its Vodafone India subsidiary, and India-based Idea Cellular.
The merger gives Vodafone the #1 market share position in several regions across India. This is a huge potential catalyst for Vodafone—India has a population of 1 billion, with high economic growth. And, the fragmented wireless market in India is slowly evolving. Industry consolidation drove price increases across the market last year, which bodes well for Vodafone moving forward.
Like Diageo, Vodafone pays a semi-annual dividend. Vodafone has an attractive dividend yield of approximately 4.6%.