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Five More Fat Dividend Stocks for Lean Times


Although high-yield, not all of these stocks are easy to purchase in the US.

Editor's note: This article should be read in conjunction with Five Fat Dividend Stocks for Lean Times.

There is no free lunch in investing, so these stocks come with a catch or two. First, many are tough to buy in the United States. I've tried to include as many US-traded stocks as I can, but some of the symbols above are pink-sheet issues, and some are found only on overseas exchanges.

But the truth is that some of these higher yields are high because these stocks don't trade widely here. (Many brokerage firms have upgraded their international desks in the past few years, so it's worth asking if you see something here that you'd like to buy.)

Second, in most of these cases you'll have to pay a foreign withholding tax on your dividends. The Internal Revenue Service allows a foreign tax deduction (with an upper limit) on taxes paid to a foreign government, but there's no doubt that the foreign withholding tax will reduce your real return from dividend-paying overseas stocks.

By how much? Well, it depends on the country in question. For example, Singapore has a 0% tax. Canada's tax is 15%. Norway's is 25%. Sweden and Australia are 30%. And Chile is 35%.

To give you a sample calculation, the Australian withholding tax reduces the effective yield on Westpac Banking to 5.81% from 8.3%. Still attractive, but not a screaming I-can't-believe-it story. (Which is good, right? If it seems too good to be true, it probably is.)

When you're trying to decide which, if any, of these dividend plays might be worth it to you, it's important to think about not only the after-tax yield but also about how long you plan to hold any of these stocks. The longer you hold, the more important the currency edge is likely to be if the US dollar loses value over the next decade.

Here are the next five stocks that round out this portfolio (with dividend yields as of May 23):

SeaDrill (SDRL)

9.31% yield. What you're buying when you invest in Norway's SeaDrill are drilling rigs -- lots and lots of deep-water drilling rigs. The company owned 11 rigs in 2005 and closed 2011 with almost 50, and it has 13 more under construction.

As you might imagine, you don't get to be this big that fast without leverage: The company uses debt to finance new rigs, and pays out as high a dividend as it can. (In crunch times, SeaDrill would cut that dividend.) That will work as long as the amount day-rate oil companies are willing to pay keeps increasing.

SeaDrill went ex-dividend on Tuesday, so you'll have to wait a quarter for the next payout.

SIA Engineering (SEGSF.PK)
This one trades as SIE.SP in Singapore; 5.28% yield.

Somebody has to keep the airplanes flying for Asia's fast-growing airline industry, and that somebody is frequently SIA Engineering. And we're not talking just Singapore. About 50 airlines use that country's Changi airport, but SIA Engineering provides services to 80 airlines around the world. (The stock is a member of my Jubak's Picks portfolio.)

Svenska Handelsbanken (SVNLY.PK)
4.77% yield. Svenska Handelsbanken is one of the most conservatively run banks in the conservative Swedish banking sector. (Skirting disaster, as Sweden did in 1991 and 1992 after the country's own real-estate bubble, tends to make a banking sector conservative. At least for a while.)

Right now, the bank's United Kingdom unit is taking in more money than it is lending in that market, which has the effect of reducing the bank's low cost of funding even more.

By the end of 2014, Svenska Handelsbanken will show a capital ratio (Basel III core equity Tier 1 ratio, to get technical) of 15%, Credit Suisse projects. That would leave the bank overcapitalized and able to increase dividend flow.

Statoil (STO)
4.85% yield. Norway's Statoil is one of the few big oil companies that I think is almost certain to deliver a steady increase in production over the next decade. In the first quarter, production was up 12% from the first quarter of 2011. (I added the stock to Jubak's Picks on May 10.)

Given the company's recent exploration success in the Gulf of Mexico, Tanzania, and the Norwegian continental shelf, production seems likely to increase at a faster rate after 2016.

Westpac Banking (WBK)
8.3% yield. One of four banks that dominate the Australia/New Zealand banking sector, Westpac Banking showed a low bad-debt-to-average-loan ratio of 0.36% in 2011.

The AA-rated bank is projected to show essentially flat earnings in 2012 before growth picks up to 5.2% in 2013. (I moved Westpac Banking to my Dividend Income portfolio from my Jubak's Picks portfolio on February 3.)

Editor's Note: This article was written by Jim Jubak of MoneyShow.

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