International Dividends: Shell, Diageo and Vodafone

02/05/2018 5:00 am EST

Focus: DIVIDEND

Bob Ciura

Contributing Editor, Wyatt Investment Research

International stocks tend to get much less coverage in the financial media than U.S. stocks. But in the search for high-quality stocks, investors should not ignore international dividend stocks, suggests Bob Ciura, editor of Wyatt Research's Daily Profit.

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 take a look at three of the top international dividend stocks for 2018.

Royal Dutch Shell (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.

It has maintained its hefty dividend, even amid 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. 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.


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Diageo (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.

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.

Diageo has a semi-annual dividend, which yields 2.2%. The firm 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 (VOD)

Vodafone is a major telecom 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.

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. This is a huge potential catalyst. Vodafone pays a semi-annual dividend. Vodafone has an attractive dividend yield of approximately 4.6%.

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