Dividend Slashers: Where To Hide?

By Aaron Levitt | September 10, 2009 AAA

With the financial crisis now entering its official one-year anniversary, investors everywhere are reevaluating their portfolios. Investors who are nearing or in retirement are especially vulnerable. Getting back lost of income has become increasingly challenging as throughout 2008 and into 2009, firms have been ruthlessly slashing dividends. In the third quarter of 2008, 138 companies cut their dividends, effectively removing $22 billion from investors' pockets. So far, the carnage of skipped or eliminated dividends in 2009 amounts to $46 billion. Traditional dividend safe havens, such as banks and utilities, may not provide the yield or safety required to make up this loss of income.

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Break Out the Passport
Some of the best dividend values may come from international stocks. Foreign firms have traditionally held a more dividend-friendly culture, paying them to shareholders rather than keeping them as retained earnings. This is evident in the higher yields of international firms. The S&P 500 SPDRs (NYSE:SPY) was recently yielding 2.7%, versus the iShares MSCI EAFE (NYSE:EFA) which is yielding 3.2%. Add this to an expected long-term decline in the dollar and general growth of the world's economy and you have recipe for success in international investments.

While there are some exchange-traded funds that focus on international dividend strategies, many have insufficient trading volumes. For example, the WisdomTree International Large Cap Dividend ETF (AMEX:DOL) has a three-month average volume of only 13,000 shares a day. However, we can use these ETFs as a backdrop to find individual companies that pay juicy yields.

A Telecom Giant
As the world's third-largest wireless provider, Telefonica SA (NYSE:TEF) pays a rich 4.3% dividend. While headquartered in Spain, the telecom giant has been gaining significant market share in Latin America, one of the up-and-coming emerging markets. Recent developments include a joint venture agreement with Chinese mobile provider China Unicom (NYSE:CHU), allowing the company to tap the growth there. Analysts expect Telefonica to earn nearly $7.40 a share in 2009, more than enough to cover the dividend and further help grow those earnings at an expected 4% in 2010. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

An Italian Oil Play
With oil's fall from its summer 2008 highs and subsequent rebound, it may be time to look into some of the integrated oil companies. With a nearly 8% dividend yield, Italy's Eni SpA (NYSE:E) has the highest yield of the majors. Operating in some 70 countries and with some fairly significant oil fields under management, Eni stands to benefit from the world's continued and increasing consumption of energy. In addition, the company has interests in electricity generation as well as various petrochemical plants.

Pass the Mayo
Consumer staples seem to be the ultimate recession resistant play - after all, people still need to eat and shave, even in a crisis. 160 million times a day, someone, somewhere on the planet chooses a product from the Anglo-Dutch conglomeration Unilever (NYSE: UL, UN). The company holds several top-selling brands in their respective categories, including Hellmann's mayo, Ragu spaghetti sauce and All laundry detergent. Shares of the consumer products company currently yield 4.3%, trade at a forward P/E of slightly above 13, and come with an added bonus: a dividend that Unilever has consistently increased each year.

Bottom Line
As retirees seek to replenish the lost income the financial crash took away, they may want to look overseas to international firms for their dividends. A friendly dividend environment allows many larger firms to serve up juicy yields. The preceding three stocks are a good way to get introduced to international dividend investing. (See Dividend Facts You May Not Know to learn about some issues that could complicate these payouts for you.)

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