Like a hungry predator, investors are on the prowl for yield. Many quality companies that were yielding 4% or 5% a year ago now have dividend yields below 4%, as prices have been bid up on nearly any stock with a respectable dividend.
As a result, investors are forced to look in some more exotic places. Real estate investment trusts (REITs), business development corporations (BDCs) and especially master limited partnerships (MLPs) have all gained popularity over the past year.
One area that has been a bit overlooked is foreign dividend payers.
There are quite a few American depositary receipts (ADRs) that pay a decent dividend – often more than their American contemporaries. However, you need to keep a few things in mind.
The dividend isn't always paid quarterly. Most American companies that pay a dividend do so on a quarterly basis. However, foreign companies sometimes pay only twice a year or even just once annually.
Currency fluctuations may alter the amount of the dividend per ADR that you receive. The company usually pays its dividend in the local currency. If you're invested in a Brazilian company, management will think about and pay its dividend in terms of Brazilian reals, not dollars. Any yield consideration will be based on its share price trading on the Bovespa (the Brazilian stock exchange). Holders of the ADR will also receive a dividend, but it will be dependent on how much was paid in the local currency and the exchange rate.
A Brazilian company could keep its dividend payment constant from one year to the next, but if the real appreciates in price, you'll get fewer dollars. If the real depreciates, you'll receive more dollars.
Therefore, for investors who prefer companies with a steady history of dividend growth, foreign ADRs may not match those objectives perfectly.
But that doesn't mean there aren't interesting income opportunities in foreign markets.