Up until now, an unspoken but extremely interesting topic relative to the Fiscal Cliff seems to have been avoided. First, most investors fear the Fiscal Cliff for different reasons that span far beyond the general implications of the Fiscal Cliff itself. Second, there are actual Fiscal Cliff groups that are quite different from one another. In particular, I bring this point up because any investor that fears the Fiscal Cliff generally gets incorrectly added into one giant hodgepodge fear group. Third, and most importantly, all the investors in each different Fiscal Cliff fear group, in my opinion, incorrectly believe that they cannot mitigate Fiscal Cliff risk-exposure while simultaneously being invested in the stock market.
Below you can review the different fear groups that I have identified and even find out which group you likely fall into based on their general descriptions:
2008-2009 Flashback Fear Group:
These investors fear the possibility of seeing their assets get snapped in half again just as much as they fear the tax implications that would be triggered if they completely exited the stock market.
Catch-22 Group:
The investors here feel like they're stuck in a Catch-22 scenario. If they remain in the stock market, their portfolio assets will be indefinitely exposed to Fiscal Cliff risks. On the other hand, if they get out of the market, they don't really have any great alternatives because high-grade fixed income assets are currently offering poor yields. Therefore, they feel like they're getting the short end of the stick one way or another.
Time Group:
This group of investors, many being baby boomers, feels as if they're being forced to stay in the stock market. This is partially due to the fact that after two huge bear markets in the last 15 years, they can't afford to sit on the sidelines when big risks like the Fiscal Cliff come about. With retirement on the horizon, they know they need to grow their assets as much as possible as quickly as possible for a comfortable retirement.
For them time really is money.
Their problem revolves around the fact that they don't have the financial wherewithal or time to survive another major hit in the stock market. Therefore, while many might prefer to head towards the sidelines to avoid the risks that the Fiscal Cliff is imposing that simply isn't an option.
These are the three Fiscal Cliff fear groups and the amazing thing is that none of them see the alternative that could help mitigate the risk they face.
Now what's the simple alternative that all seem to blind to?
Investing abroad in foreign dividend-paying stocks.
Why is investing in foreign dividend stocks a viable strategy relative to being in the stock market and managing the risks associated with the US Fiscal Cliff?
In my opinion, there are three simple reasons why:
- Despite all the economic issues that US investors hear about relative to Western Europe, it doesn't change the fact that the EU remains the largest and most powerful combined economic trading block in the world due its sheer size. As well, the Euro and British Pound have consistently remained stronger than the US dollar despite the Greek crisis, Spain's instability, every PIGS-related issue, the UK's recession, and everything in between.
- Southeast Asia, China in particular, remains in a state of strong economic growth for the foreseeable future. While it may not continue to grow at the break-neck speeds we became accustomed to over the last decade, it will likely continue to outperform the US in terms of growth moving forward.
- By investing abroad, US investors are directly and immediately reducing their risk exposure to being invested in US assets that would likely tumble should the US go over the Fiscal Cliff.
Now that you know the different fear groups and understand how investing in foreign dividend-paying stocks can help reduce one's risk to the US Fiscal Cliff, it's time to check out some specific stocks.
Today I searched for and found ten foreign dividend-paying stocks that I believe are worth independently reviewing further. These are foreign companies that pay a meaningful dividend yield (X>=3%), have been able to grow their EBIT year-over-year (X>=10%), and are trading with cheap Forward P/E valuation (X=<12).
1. AstraZeneca PLC ADR (AZN)
Sector | Healthcare |
Industry | Drug Manufacturers - Major |
Market Cap | 59,731M |
AstraZeneca PLC engages in the discovery, development, and commercialization of prescription medicines for gastrointestinal, cardiovascular, neuroscience, respiratory and inflammation, oncology, and infectious diseases worldwide. AZN has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 11.32% and today offers a dividend yield of 6.01% to investors. Despite this UK company's strong top line growth, the company is only trading with a Forward P/E valuation of 8.11.
2. Yanzhou Coal Mining Company (YZC)
Sector | Basic Materials |
Industry | Coal |
Market Cap | $7,884M |
Yanzhou Coal Mining Company Limited, together with its subsidiaries, engages in the mining, preparation, and sale of coal in China, Japan, South Korea, and Australia. YZC has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 22.6% and today offers a dividend yield of 5.07% to investors. Despite this Chinese company's strong top line growth, the company is only trading with a Forward P/E valuation of 9.70.
3. Total SA ADR (TOT)
Sector | Energy |
Industry | Oil & Gas Integrated |
Market Cap | $114,818M |
TOTAL S.A., together with its subsidiaries, operates as an integrated oil and gas company worldwide. TOT has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 28.62% and today offers a dividend yield of 4.95% to investors. Despite this French company's strong top line growth, the company is only trading with a Forward P/E valuation of 6.94.
4. Sasol, Ltd. ADR (SSL)
Sector | Energy |
Industry | Oil & Gas Integrated |
Market Cap | $27,111M |
Sasol Limited operates as an integrated energy and petrochemicals company worldwide. SSL has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 22.73% and today offers a dividend yield of 4.91% to investors. Despite this South African company's strong top line growth, the company is only trading with a Forward P/E valuation of 7.51.
5. Royal Dutch Shell PLC ADR (RDS.A)
Sector | Energy |
Industry | Oil & Gas Integrated |
Market Cap | $225,838M |
Royal Dutch Shell plc operates as an oil and gas company worldwide. RDS has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 57.48% and today offers a dividend yield of 4.82% to investors. Despite this Dutch company's strong top line growth, the company is only trading with a Forward P/E valuation of 11.43.
6. Bank of Montreal (BMO)
Sector | Financial Services |
Industry | Banks - Regional - Canada |
Market Cap | $68,018M |
Bank of Montreal, together with its subsidiaries, provides various retail banking, wealth management, and investment banking products and services in North America and internationally. BMO has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 28.50% and today offers a dividend yield of 4.64% to investors. Despite this Canadian company's strong top line growth, the company is only trading with a Forward P/E valuation of 9.46.
7. Seagate Technology PLC (STX)
Sector | Technology |
Industry | Data Storage |
Market Cap | $10,438M |
Seagate Technology Public Limited Company designs, manufactures, markets, and sells hard disk drives for enterprise storage, client compute, and client non-compute market applications worldwide. STX has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 285.61% and today offers a dividend yield of 4.59% to investors. Despite this Irish company's strong top line growth the company is only trading with a Forward P/E valuation of 4.21.
8. Daimler AG (DDAIF.PK)
Sector | Consumer Cyclical |
Industry | Auto Manufacturers |
Market Cap | $56,956M |
Daimler AG develops, manufactures, distributes, and sells passenger cars and off-road vehicles, trucks, vans, buses, and related spare parts and accessories. DDAIF has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 20.36% and today offers a dividend yield of 3.98% to investors. Despite this German company's strong top line growth, the company is only trading with a Forward P/E valuation of 6.80.
9. Bank of Nova Scotia (BNS)
Sector | Financial Services |
Industry | Banks - Regional - Canada |
Market Cap | $68,018M |
The Bank of Nova Scotia, together with its subsidiaries, offers various personal, commercial, corporate, and investment banking services in Canada and internationally. BNS has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 19.15% and today offers a dividend yield of 3.78% to investors. Despite this Canadian company's strong top line growth, the company is only trading with a Forward P/E valuation of 10.26.
10. Statoil ASA ADR (STO)
Sector | Energy |
Industry | Oil & Gas Integrated |
Market Cap | $78,377M |
Statoil ASA, an integrated energy company, engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products in Norway and internationally. STO has been able to grow its EBIT year-over-year (Year 1/ Year 2) by 54.29% and today offers a dividend yield of 3.69% to investors. Despite this Norwegian company's strong top line growth, the company is only trading with a Forward P/E valuation of 4.08.
In my opinion, the 10 foreign dividend-paying stocks listed here are examples of potential alternatives that deserve further independent review for those who are extremely concerned about the US Fiscal Cliff's risk implications and being invested in US assets.
*Information sourced from Finviz.com and Morningstar.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: The information and opinions stated here are not to be taken as direct individual investment advice.
