Foreign Stocks Recover, Still Lag U.S.

8/4/2014


The past year has brought a number of unsettling global events, including deadly protests in Turkey, the Russian invasion of Ukraine, and border clashes between Israel and Palestine. Yet global markets are rebounding.

The MSCI's developed world index has gained 15.6% in the past year, well ahead of the 10-year annualized increase of 5.5%. This index tracks returns for large and midsize companies in 23 developed countries. The U.S. index has performed even better, up 17.1%.

For 2014, the U.S. is up 6.5%, ranking 11th among the 23 developed countries tracked by MSCI and outpacing the developed world index's 5.0% gain.

A broader benchmark, the Dow Jones Global ex-U.S. Total Stock Market Index, which covers 76 countries, is up 4.8% for the year. In contrast, the Dow Jones U.S. Total Stock Market Index, comprising all U.S. equities with readily available prices, has advanced 5.8%.

DEVELOPED-MARKET RETURNS
--------------------------- Price Change ---------------------------
Year-
To-Date
(%)
1 Year
(%)
------------- Annualized -------------
Index
3 Years
(%)
5 Years
(%)
10 Years
(%)
Israel
22
26
(1)
0
5
Denmark
16
35
16
17
13
Canada
11
16
2
7
9
New Zealand
11
16
7
11
2
Australia
10
13
3
9
8
Spain
10
37
3
(1)
4
Italy
10
32
2
0
(2)
Hong Kong
8
15
6
8
8
Singapore
7
6
0
7
9
Norway
7
14
3
10
8
USA
7
17
15
15
6
Belguim
3
23
15
13
3
U.K.
3
14
6
9
3
Switzerland
2
13
9
12
8
Ireland
2
24
15
8
(6)
Finland
2
35
8
4
4
Japan
1
8
5
5
3
France
(1)
12
4
5
4
Sweden
(2)
7
6
12
9
Netherlands
(4)
10
8
9
5
Germany
(5)
15
5
9
7
Portugal
(6)
0
(9)
(6)
(2)
Austria
(14)
(4)
(10)
(3)
(3)
Developed world
5
16
10
11
5
Developed world excluding USA
3
14
5
7
5
Source: MSCI.

For investors encouraged by the improvement in global markets, we present all 17 foreign stocks included on our Monitored List in the table below.

Some foreign companies list their shares on U.S. exchanges. Others require U.S. investors to purchase American Depositary Receipts (ADRs), which trade like stocks on U.S. exchanges. ADRs can be acquired through any brokerage, though some foreign companies also sell their ADRs directly to investors. A custodian bank in the company's home country holds the actual shares. The ratio of shares to ADRs is not always one-to-one. For instance, one ADR of Toyota Motor ($121; TM) represents two underlying shares.

In most cases, dividends presented in the table are larger than what U.S. investors will actually receive. That's because countries tend to withhold taxes on dividends paid to investors living elsewhere.

Withholding rates vary by country. The U.K. does not withhold any tax on dividends, while Australia withholds 30%. Canada's withholding rate of 25% is reduced to 15% for U.S. investors due to a tax treaty between the two countries. Unfortunately, some countries routinely withhold more than stipulated by treaty, saddling investors with the time-consuming task of filing tax forms to recover the lost funds.

Many U.S. investors face a second wrinkle. The federal government gives investors a tax credit on dividend income already withheld by foreign countries. But few states do so, forcing investors to pay the tax twice.

We currently recommend one foreign stock. Based in Ontario, Canada, auto-parts maker Magna International ($110; MGA) provides operating results in U.S. dollars. Same goes for Magna's quarterly dividend, currently $0.38 per share, eliminating the effect of currency fluctuation for U.S. investors.

The dividend has grown at an annualized rate of 26% over the past three years. Magna seems capable of additional big dividend hikes, given its conservative payout ratio of 20% and strong free-cash-flow growth (more than doubling to $1.40 billion in the 12 months ended March). Magna, yielding 1.4%, is a Focus List Buy and a Long-Term Buy. The company plans to announce June-quarter earnings Aug. 8.

FOREIGN STOCKS WE COVER
All 17 foreign stocks on our Monitored List pay dividends, though at varying frequencies. They average 2.3% for dividend yield, 7% for five-year annualized dividend growth, and 68 for Overall score.
Company (Price; Ticker)
Div.
($)
Yield
(%)
Payout
Frequency
5-Year
Annual.
Dividend
Growth
(%)
Quadrix
Overall
Score
Country
Industry
Accenture ($81; ACN)
1.86
2.3
Semiannual
30
64
Ireland
IT consulting & services
ArcelorMittal ($15; MT)
0.17
1.1
Annual
(31)
46
Luxembourg
Steel
AstraZeneca ($73; AZN)
2.80
3.8
Semiannual
6
22
United Kingdom
Pharmaceuticals
Barrick Gold ($19; ABX)
0.20
1.1
Quarterly
(3)
13
Canada
Gold
BASF ($109; BASFY)
2.72
2.5
Annual
8
92
Germany
Diversified chemicals
BP ($49; BP)
2.34
4.8
Quarterly
(8)
62
United Kingdom
Integrated oil & gas
Canadian Nat'l Railway ($68; CNI)
0.94
1.4
Quarterly
16
80
Canada
Railroads
Covidien ($87; COV)
1.28
1.5
Quarterly
14
35
Ireland
Health-care equipment
Magna International ($110; MGA)
1.52
1.4
Quarterly
20
99
Canada
Auto parts & equipment
Manulife Financial ($20; MFC)
0.48
2.4
Quarterly
(12)
91
Canada
Life & health insurance
Nippon Telegraph ($34; NTT)
0.75
2.2
Semiannual
10
94
Japan
Integrated telecom svcs.
Novartis ($88; NVS)
2.34
2.7
Annual
10
50
Switzerland
Pharmaceuticals
Novo Nordisk ($46; NVO)
0.61
1.3
Annual
23
76
Denmark
Pharmaceuticals
Rogers Communications ($39; RCI)
1.71
4.4
Quarterly
13
68
Canada
Wireless telecom svcs.
SAP ($80; SAP)
1.78
2.2
Annual
15
73
Germany
Application software
Toyota Motor ($121; TM)
2.93
2.4
Semiannual
(2)
99
Japan
Auto manufacturers
Volkswagen ($47; VLKAY)
0.81
1.7
Annual
10
89
Germany
Auto manufacturers
Notes: Quadrix scores are percentile ranks, with 100 the best. Dividends and yields are estimated.

 


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