Adding International Dividends to Your Passive Income Portfolio

Mar.24.11 | About: SPDR S&P (DWX)

We have discussed passive income portfolios many times in the past few months and dividend investing is certainly a major part of what we consider to be a great way to add passive income. Every month, we take a look at the top dividend stocks from the S&P500 and then do a further analysis in our newsletter.

We have also discussed the benefits of adding international exposure to investment portfolios and the various ways of doing that. One interesting idea is to add US listed stocks that pay foreign dividends. Why?

  • Greater diversification in the actual payout: Companies that pay a foreign dividend generally have an important part of their business outside of the United States and because of that they will generally help you get a better risk/return for your portfolio
  • No conversion complications: In almost all cases, if you own a US listed stock in an account in $USD, the dividend will automatically be converted to $USD in your account even if it is paid in a foreign currency.
  • While the $USD is not doomed, it is fairly easy to make the case that there are many things to worry about (debt, emergence of China, high unemployment, etc) and having a cash flow in another currency might help increase your yield over time if the dollar continues to have a difficult time
  • By buying US listed stocks, you avoid all of the tax implications of owning foreign stocks that would require withholding taxes, etc.


  • Your broker will be taking a slight cut on the conversion of your dividend as usually happens for all conversions
  • International companies sometimes have a less reliable dividend payout. Why? Because while companies in North America generally put a high value on paying a consistent dividend, many international companies try to pay out as much as possible, some years making larger payouts and some others less so. Obviously, the dividend growth is not as consistent for these companies but it can still amount to superior growth overall and you could argue that a company that has such a pattern will have bigger incentives to perform than a company that pays a third or half of what it could.

Overall, I think it’s a winning proposition to add some quality foreign companies that are listed in the US, ideally that pay a dividend in a foreign currency. Over the next few days I will take some time to look at a few options, hopefully we’ll find some interesting ones.