Scouring The Globe For Dividend Stocks

By: ispeculatornew
Date posted: 10.28.2011 (5:00 am) | Write a Comment  (0 Comments)

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One very interesting and surprising fact is that despite the fact that dividend investing is bigger than it has probably ever been US companies continue to avoid paying out earnings as much as they should. If shareholders want to get higher dividend amounts, why aren’t public companies answering those needs? The biggest reason is that US companies are hoarding cash a lot more. The portion of their earnings that is paid back to shareholders through dividends has been decreasing for years now.

Why Companies Are Keeping Their Cash

For some such as Apple, the two main reasons have been:

Willingness to keep large amounts of money to have more M&A/R&D options
Refusal to give its shareholders and employees the impression that growth will slow down (common perception about dividend paying companies)

For many others however, the main problem is that much of their huge cash reserves are stuck overseas. A company such as Google has a corporate structure that minimizes is every way possible the amount of taxable income in the US. That means most of its revenues are cleverly “credited” to its overseas operations. That means bringing back those huge cash reserves right now for a company like Google would result in important payable taxes which is something they want to avoid.

How To Fix This Issue

There are few easy ways out of this issue. Many large companies like Google are asking for a one time exemption (as has been done in the past) for them to bring back the cash with a “tax holiday”. That could of course be done as a quick fix but it does not resolve the underlying problem. As long as big corporations “earn” most of their cash abroad, it will be difficult for them to pay out as much as they and should pay out to shareholders. What must be done for corporations to earn more of their revenues in the US? Probably two main things; Diminishing the corporate tax rate and eliminating loopholes. That would not solve all cases, far from it in fact. But it would be enough to ensure that a bigger share of earnings would be earned and taxes in the US.

In The Meantime…

There are many different ways to improve your chances of getting bigger dividends and strong dividend growth. One such way is of course to look abroad which is exactly what we did when discussing investing in China. However, I thought it would be interesting to take a quick look around the globe to see dividend yields and how things are looking up for dividend investors:

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It could be tempting to look at France and Spain as great dividend plays but the reason their dividend looks attractive is very simple; their financial institutions are in big trouble and could suffer severe losses which will in the end result in big dividend reductions.

However, an index such as Brazil certainly looks very attractive and its resource-based economy could suffer if the world economy drops back in recession, I think the dividend is fairly safe. How would you buy Brazil? The most obvious way would be to buy an ETF, the main one being EWZ which yields..3.69%! Not very far from its target index right?

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