Looking for some extra yield for your clients?  Which advisors aren’t these days?

When advisors and investors seek dividend yields, many think U.S. only. U.S. companies are expected to pay $300 billion in dividends in 2013, according to S&P Dow Jones Indices.  But foreign companies yield more, on average, and overseas dividend growth is expected again for this year. Dividend yields received from U.S. companies currently average only 2.1 percent, compared to nearly double that -- 4 percent to 4.5 percent -- from foreign companies, according to Thomson Reuters MSCI.

About 66 percent of the world’s dividends come from outside the U.S., according to Thomson Reuters MSCI, and advisors can easily diversify client portfolios with a dollop of foreign dividend-paying stocks.

Within the global market for dividends, the practices and policies surrounding dividend payments varies. The UK, Europe and Asia-Pacific maintain strong dividend cultures and companies tend to distribute high percentages of earnings in the form of cash dividends. Meanwhile, the U.S. and Japan have less emphasis on returning profits to shareholders via dividend payments.

Vincent J. McBride, a partner at Lord Abbett and the portfolio manager of its $2.1-billion International Dividend Income Fund (LIDAX) Class A, has a clear-cut rationale for international stock dividends today. “Many European, Australian and Asian companies pay out a large percentage of their earnings in the form of dividends. It’s a function of history and culture,” he explains. “U.S. companies, on the other hand, despite long periods in the past, when they were willing to pay out more from their earnings, have recently been “more inclined to do buybacks. U.S. companies have also retained more earnings to plow them back into the business.”   

International Dividend Income Fund’s strategy starts with a quantitative dividend yield screen that measures stocks against several international and domestic indexes. “We look at all the companies outside the U.S. with a market cap great than $1.5 billion,” says McBride. “Within that universe we look at the top decile companies. The lower end of dividends is about 4.5 percent. The average yield of stocks in the fund, after taxes and expenses, is about 5.3 percent currently.”

The fund’s top-10 holdings include Swiss pharmaceutical giant Roche Holding AG, which has grown its dividend at 8 percent a year over the past four years, McBride notes. The fund’s largest holding is National Australia Bank Ltd., yielding 5.8 percent as of mid-April. “Unlike banks in Europe or the U.S.,” he says, “dividend yields have remained high across the banking sector.”  

At Thornburg’s Investment Income Builder Fund (TIBAX), manager Ben Kirby and co-managers Brian McMahon and Jason Brady look for companies with the ability to pay dividends and increase them over time. “We invest in both dividend-paying stocks and fixed income, although we’re finding more value in the stock market than the bond markets today,” said Kirby.

Lipper characterizes the $13.2-billion fund as a mixed-asset target allocation growth fund. The fund’s yield as of mid-April was 5.5 percent before fees. Year-to-date, it had returned 7.8 percent, and 11.3 percent annualized since inception in December 2002.

By virtual of size alone, $74.7 billion American Funds World Growth and Income Fund (CWGIX) could be regarded as an outlier. The fund sits atop its category, according to fund research firm Morningstar Inc.

Capital World Growth and Income is managed by a team of nine portfolio managers and a separate team of analyst specialists that circle the globe seeking out stocks that provide long-term growth of capital while providing current income.

Morningstar analyst Kevin McDevitt notes in a recent report the fund’s emphasis on blue-chip companies in the consumer staples and discretionary sectors, responsible for 25 percent of assets. “Both groups are full of well-established companies with strong brands and stable dividends, such as the top-10 holdings Philip Morris International (PM) and Belgium-based Anheuser-Bush InBev SA,” according to McDevitt.  

Rather than a handicap, McDevitt says the fund’s size -- spread over nearly 300 stocks -- affords more flexibility to take advantage of opportunities around the world as they arise. Since inception in 1993, the fund has returned 10.56 percent annualized.  McDevitt sees it besting its MSCI EAFE benchmark in 2013 for the ninth year out of the past 12.

Another global fund, the $1.6-billion Henderson Global Equity Income A Fund (HFQAX), is made up of large-cap dividend paying-value stocks, with some mid-cap and small-cap spillover. Its asset split is roughly 80 percent/20 percent foreign to U.S. The fund notched a 12-month yield of 6.34 percent through its most recent period, ending March 31, 2013.      

"We’re primarily aiming for stocks with above-average yield and growth,” says portfolio manager Job Curtis, based in London. “We like companies with good cash-flow characteristics because they’re able to pay dividends. The fund overall has a low beta, which means less than average volatility.

Curtis particularly likes Germany’s Siemens AG, an industrial bellwether stock currently yielding 3.5 percent, Pfizer Inc., yielding 3.4 percent, and ENI SpA, an international oil company based in Italy, yielding about 5.5 percent.

Meanwhile, some investors are finding opportunities in the burgeoning market of foreign exchange traded funds focusing on dividends.
The rationale for buying is the same as buying a domestic ETF, says Morningstar ETF analyst Abby Woodham. “The idea is you believe in buying high-yield equities, but don’t want an active strategy. You just want to buy a whole market.”

“Most of the international dividend ETFs weight by yield, and thus are contrarian products,” Woodham says. “I like funds that screen for quality. You want durable companies, not highly distressed ones in a fund.”

Woodham’s favorite international ETF dividend payer is the Power Shares International Dividend Achievers Portfolio (PID). “Its 12-month yield of 2.43 percent is not as high as some other international ETFs,” says Woodham, “but it has a more stringent screen.” She expects the market to continue growing.