Ray Mills, manager at both the T. Rowe Price Overseas Stock and the International Growth and Income funds, says dividend yield is just one element among many he uses to evaluate companies. "Within the dividend, we want to find sustainability, the ability to pay and growth."
Mills likes the telecom sector, including such stocks as Spain's Telefonica and France Telecom that were yielding in the 7% to 8% range. He also likes the sustainable dividends found at large integrated oil companies such as Royal Dutch Shell PLC, which recently yielded 6%, and BP PLC, at just under 6%.
"They're not going away tomorrow," says Mills. "It's likely they'll be able to keep paying that dividend or even higher over time, and that's pretty attractive relative to what you can find in the fixed income markets right now."
Asian Opportunities
The situation is somewhat different in Asia. Jesper Madsen, portfolio manager of the Matthews Asia Dividend fund, frequently finds himself debunking the notion that Asian companies are growth companies and therefore are not likely to pay high dividends.
He maintains that growth in dividends in Asia historically has been higher than in the U.S., and cites an internal study covering the period from 2002 through 2008 that shows 18% annualized dividend growth for companies in the MSCI Asia-Pacific Index, versus 10% dividend growth for companies in the S&P 500 index during that period.
"People don't get penalized when they invest in a faster-growth region like Asia-Pacific," says Madsen. "They actually receive a higher dividend yield than in the U.S."
He notes that roughly 5,000 companies in the region with a market cap of $100 million or above, pay dividends. China remains fertile ground for dividend seeking investors. Madsen says the total amount of dividends paid by listed Chinese companies has zoomed from $8 billion in 1998 to $73 billion in 2008. The MSCI China Index recently yielded about 2.8%.
Yet some investors fear a growing bubble in Asia's developing countries. "It depends on what sector you're looking at," says Madsen. "Certain sectors such as consumer-related companies have done quite well. Whether there's a bubble is maybe too strong to say, but valuations are certainly more demanding than they have been in a long time. That doesn't mean, however, you can't find companies that are reasonable within that space."
Risk-Adjusted
David Ruff, a portfolio manager at Forward Management in San Francisco, invests in select dividend-paying companies through his International Dividend Portfolio, a separately managed account that's marketed through the advisor channel. He uses a bottoms-up strategy for screening attractive stocks regardless of their location, but applies a risk-control process to avoid too much concentration in any one country or region.
Generally, Ruff avoids countries with balance of trade problems or extreme political, fiscal, and currency risks such as Greece, Ukraine, and Vietnam. The portfolio has a "healthy" weighting in Europe, he says, primarily due to the large universe of dividend payers in the region and the fact many of these companies derive a portion of their revenues and profits outside Western Europe.