U.S. dividend stocks continue to sport relatively low yields compared with other assets, especially as bond yields climb amid the Federal Reserve’s rate-hike.
But, there are alternatives assets to U.S. dividend stocks…international stocks:
- MSCI Europe index was yielding 3.4%,
- Japan’s Nikkei 225 index was yielding 2%,
- MSCI Emerging Markets index was at 3.1%.
- S&P500 was yielding 1.6%.
“Outside the U.S., there’s more of a culture of returning capital to shareholders through dividends rather than buybacks,” says Julian McManus, a portfolio manager at Janus Henderson Investors.
International stocks offer an higher yield than U.S. equities, though there are risks. Early in the pandemic, for example, dividend cuts went much deeper overseas than they did in the U.S.
Additionally, most countries impose a withholding tax on dividends paid to nonresidents. However, those withholding taxes, in many cases, can be credited against the U.S. shareholder’s U.S. tax liability, according to Robert Willens, a New York–based accounting and tax expert.
Another risk international dividends pose is that they can be more apt to get cut in economic downturns.
U.S. investors face a trade-off when it comes to international dividends: higher yields with higher risk.
Dividend investing is a strategy that gives investors two sources of potential profit: Income from regular dividend payments and capital appreciation of the stock. Buying dividend stocks is a great approach for investors looking to build wealth by reinvesting dividend payments. pic.twitter.com/NdPEhr9t7k
— 𝕋𝕙𝕖 𝔻𝕖𝕗𝕖𝕟𝕤𝕚𝕧𝕖 𝕀𝕟𝕧𝕖𝕤𝕥𝕠𝕣 (@TD_Investor) August 19, 2022
References:
- Lawrence C. Strauss, Why Income Seekers Should Consider International Stocks, Barron’s, August 5, 2022.
https://www.barrons.com/articles/international-stocks-income-dividends-yield-51659585601