Get Rich with Dividends: A Proven System for Earning Double-Digit Returns

CHAPTER 11

Foreign Stocks

Some dividend payers, particularly in emerging markets, can offer very attractive yields, especially in comparison to their American counterparts.

In late 2011, while quality American companies were trading with yields around 3% to 4%, many emerging market and beaten-up European equities were paying double those yields.

It’s important to consider why emerging market stocks may have a higher dividend yield. Remember, Wall Street doesn’t just give money away. Two equal stocks will typically not pay dividend yields that are so wide apart that one will be one and a half to twice that of its peer.

If company A is paying a yield of 7% and company B is paying 3.5%, it’s because company A is riskier or Wall Street believes it’s riskier. Great investors make lots of money when they can identify those companies that are mispriced because Wall Street is mistakenly scared of a stock or underestimated its performance.

The same is true when it comes to dividend yields. You’ll want to find those companies whose yields are high compared to similar American companies, because the Street has mispriced the stock.

But it is very important to realize that the higher yield typically involves higher risk. It doesn’t mean you shouldn’t take that risk, but you definitely need to be aware of it.