If You're Hunting for Dividends, Be Sure to Cross the Pond

While U.S. stocks offer the comfort of familiarity, several international stocks offer attractive dividend yields and trade at cheaper valuation levels than their domestic peers. They also let investors diversify their portfolios in the event that the U.S. economy underperforms. Here we'll look at three international high-yield stocks: BP , Unilever and GlaxoSmithKline . Pumped About BP BP is one of the largest oil and gas corporations in the world, with a market capitalization of $105 billion. It operates in two segments, upstream and downstream (mostly refining), but it generates the vast portion of its earnings from its upstream segment. All the well-known oil majors, such as Exxon Mobil , Chevron and BP, went through a fierce downturn in 2020 due to the collapse of the price of oil caused by the pandemic. The prices of oil and gas have rallied to 13-year highs this year, because of several factors including sanctions imposed following the Russian war on Ukraine. As Russia produces 10% of global oil output and more than 30% of the natural gas consumed in Europe, these sanctions have greatly tightened the oil and gas markets. These sanctions are not likely to be withdrawn anytime soon. BP is now on track to post 10-year high earnings per share this year. It is also important to note that BP has a much higher debt than Exxon and Chevron due to its catastrophic accident in the Gulf of Mexico and hence it benefits more than its peers from the rally of the prices of oil and gas. BP has taken advantage of its excessive free cash flows and has reduced its debt load for eight consecutive quarters. Moreover, BP is currently offering a 4.1% dividend yield. While this is a nearly 10-year low dividend yield for BP, it is higher than the 3.7% yield of Exxon and the 3.2% yield of Chevron. Furthermore, BP has repeatedly stated that it expects to keep raising its dividend by 4% per year if the price of oil remains around $60 or higher. In such a scenario, BP also expects to repurchase $4 billion of shares (~4%) per year. As the price of oil is much higher than $100, with no end of sanctions on the horizon, BP is likely to keep offering excessive distributions to its shareholders for the foreseeable future. Unilever's Got the Goods Unilever is one of the largest consumer goods companies in the world, producing and marketing approximately 400 brands in nearly 200 countries. Its product portfolio includes well-known brands, such as Ben & Jerry's, Q-tips, Suave, Vaseline, Axe, Dove, Hellmann's, Knorr and many more. Its products are used by more than 2 billion people every day. Unilever is currently facing a strong headwind, namely the surge of cost inflation to a 40-year high. Due to the exceptionally high inflation in raw materials, freight costs and labor, Unilever has stated that it expects its operating margin to shrink from 18.5% in 2021 to 16%-17% this year and revert to normal levels in 2024. As a result, the market has punished the stock with a 14% decline this year. But it is critical to note that Unilever has exceptionally strong pricing power, thanks to the unparalleled strength of its brands. To be sure, in the first quarter, the company raised its prices by 8.3% over last year's quarter and its volumes dipped only 1%. As a result, Unilever grew its sales 7.3% in the quarter. The company also grew its online sales strongly and thus its online sales now comprise 14% of its total sales. In addition, the 13 brands that generate annual revenues in excess of $1 billion grew their sales 8.8%. Overall, thanks to the exceptional strength of its brands, Unilever is much more resilient to the highly inflationary environment than most companies. Another tailwind for Unilever is the initiation of a significant stake in the company by activist hedge fund Trian. Trian bought a stake in Procter & Gamble a few years ago, when the company had completely stalled. The fund pursued a major restructuring, which involved divesting nearly two-thirds of the brands of the company in order to get rid of slow-growth brands and focus on the most promising ones. The project had great success and led the stock of Procter & Gamble to more than double since then. The recent investment of Trian in Unilever is certainly a promising development for the company. The stock jumped 8% on the day of the announcement of the stake of Trian. It is also important to note that Nelson Peltz, a founding partner of Trian, recently joined the board of directors of Unilever. Unilever has an exceptional dividend growth record, as it has raised its dividend in euros for 40 consecutive years. The stock is currently offering a 4.2% dividend yield, with a payout ratio of 66%. Given its resilience to downturns, its promising growth potential and its solid balance sheet, the consumer products giant is likely to continue raising its dividend for many more years. Therefore, investors are given the opportunity to lock in a 4.2% dividend and benefit from many dividend hikes in the future. GlaxoSmithKline GlaxoSmithKline is based in the U.K. and develops, manufactures and markets health care products in the areas of pharmaceuticals, vaccines, and consumer products. Its pharmaceutical offerings address the following disease categories: central nervous system, cardiovascular, respiratory and immune system. GlaxoSmithKline has a more volatile performance record than most major pharmaceutical companies. On the bright side, it invests heavily on research and development. During the last 12 months, the company has spent nearly 13% of its revenues on R&D. Moreover, its respiratory products appear to have promising growth prospects while the company also has several vaccines demonstrating strong growth rates. To cut a long story short, GlaxoSmithKline has decent growth prospects ahead. Moreover, the stock is offering a 4.6% dividend yield, with a payout ratio of 67% and a healthy balance sheet. It is also worth noting that the stock has outperformed the broad market by an impressive margin this year, as it has remained essentially flat whereas the S&P 500 has shed 14%. The main reasons behind the outperformance are the fairly resilient business model of GlaxoSmithKline and the upcoming spin-off of the consumer healthcare business, Haleon, which is expected in July. Haleon has an enviable blockbuster portfolio of well-known brands, including Sensodyne, Voltaren and Centrum. In the past, GlaxoSmithKline received takeover bids for this business from private equity firms as well as from Unilever but it rejected those offers. Thanks to the upcoming spin-off of this segment, the valuation of the stock as a sum-of-parts has remained resilient, despite the fact that the broad market has entered bear market territory this year. Overall, GlaxoSmithKline is offering an above-average dividend yield and markedly low stock price volatility during the tumultuous period the broad market is going through. Most investors focus exclusively on domestic stocks, but it is a shame that they miss some high-quality international stocks, which can offer above-average dividend yields and enhance the diversification of investing portfolios. The above three stocks are offering exceptionally high dividend yields while they are also resilient to the inflationary business environment prevailing right now.

If You're Hunting for Dividends, Be Sure to Cross the Pond

Let's look at three high-yield dividend stocks to diversify your portfolio.

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