Investing internationally is one of the best ways to diversify a dividend growth portfolio. In addition to the benefits of diversifying one's assets into currencies other than the U.S. dollar as a hedge against high inflation and high debt in the U.S. economy, some of the most respected and profitable multinational companies in the world are based outside of the U.S. However, dividend growth investors face two common problems when looking for suitable international stocks:
1) Many foreign governments withhold taxes on dividends paid to foreign investors, which often cannot be recovered if the U.S. investor is holding the stock in a tax-deferred account like an IRA. For example, France withholds 30% and Switzerland withholds a whopping 35%!
2) Many foreign companies pay irregular dividends at long intervals. It is not uncommon for foreign companies to only pay annual or semi-annual dividends and for the dividends to fluctuate up and down based on the current year's profits. These characteristics can make holding foreign dividend stocks difficult for anyone who depends on a regular, stable source of income.
Despite these two problems, there are many excellent foreign dividend-paying companies out there. I have written previous articles about both Canadian stocks and U.K. stocks with U.S. style dividends. In this article, I would like to explore strong dividend paying companies on the other side of the world in Singapore.
I believe that Singapore is an excellent country in which to look for companies with stable earnings and long histories of dividend growth for several reasons. First, companies in Singapore benefit from easy access to the world's second largest economy, China, as well as many other growing economies in the Southeast Asia region, such as Malaysia, Thailand, and Indonesia. As Singapore has a high level of education and wealth compared to these surrounding countries, it is in an excellent position to provide many high value-added services to its neighbors, such as financial services and complex engineering. In addition, Singapore has the world's best business climate out of 183 countries according to Doing Business 2012. Best of all, there is 0% tax withholding on dividends paid out by companies in Singapore to U.S. investors, solving the first major problem of investing in foreign, dividend-paying companies.
Although investors can gain access to the broader market in Singapore via the iShares MSCI Singapore Index (NYSEARCA:EWS), there are many excellent, profitable Singapore companies that pay dividends that remain stable with consistent growth from year to year. There are few companies in Singapore that pay U.S. style quarterly dividends, but there are many that pay semi-annual dividends, partially solving the second problem of investing in foreign dividend stocks. I would like to highlight three of my favorite dividend stocks in three diverse sectors in Singapore: Keppel Corp Ltd (OTCPK:KPELY), DBS Group Holdings Ltd (OTCPK:DBSDY), and Singapore Telecommunications Limited (OTCPK:SGAPY).
Keppel Corp Ltd- This company is one of the largest oil services, shipbuilding, and engineering firms in Singapore, having a market capitalization of $17 billion. According to its website, it generates 57% of revenue from offshore and marine operations, 28% from infrastructure, and 15% from property holdings. It conducts operations in 30 countries around the world. Dividends from the ADR shares are not currency hedged, so they can vary slightly when distributed in USD based on the USD/SGD exchange rate at the time. However, they are stable in SGD with a predictable pattern of growth. There is an interim (smaller) dividend in July and a larger dividend in April. The current yield is 3.82% and the 5 year dividend growth rate is 20.0%, excluding special dividends. It has an estimated 2012 P/E ratio of 12.6 according to data from Interactive Brokers.
DBS Group Holdings Ltd - This company is one of Singapore's largest banks, having a market capitalization of $28 billion. According to its website, the bank is rated AA- by Standard and Poor's, and it is the 15th strongest bank in the world as well as the strongest in Asia in a ranking done by Global Finance. Of total bank assets excluding goodwill, 62% are in Singapore, 20% are in Hong Kong, 9% are in mainland China, and 5% are in other Southeast Asian nations. Dividends from the ADR shares are not currency hedged, so they can vary slightly when distributed in USD based on the USD/SGD exchange rate at the time. However, they are stable in SGD with a predictable pattern of growth. There are two equal dividends in October and June. The current yield is 3.82% and the 5 year dividend growth rate is slightly negative due to the financial crisis, but it has been stable between 2009 and the present. It has an estimated 2012 P/E ratio of 11.3 according to data from Interactive Brokers.
Singapore Telecommunications Limited - This company is one of the largest telecommunications companies in Singapore, having a market capitalization of $42 billion. According to its website, it has 445 million (!) mobile subscribers across Asia and Africa through substantial investments in six regional mobile operators. In 2011, about 20% of net income came from operations in the Singapore, while the rest came primarily from Australia, Indonesia, Thailand, and India. Dividends from the ADR shares are not currency hedged, so they can vary slightly when distributed in USD based on the USD/SGD exchange rate at the time. However, they are stable in SGD with a predictable pattern of growth. There is an interim (smaller) dividend in December and a larger dividend in August. The current yield is 4.80% and the 5 year dividend growth rate is 7.5%, excluding special dividends. It has an estimated 2012 P/E ratio of 14.5 according to data from Interactive Brokers.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:KPELY, OTCPK:DBSDY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.