Foreign Dividend Stocks: Easy Diversification and Big Bucks, Too

Foreign Dividend Stocks: Easy Diversification and Big Bucks, Too

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some foreign dividend stocks to your portfolio but don't have the time or expertise to hand-pick a few, the First Trust Dow Jones Global Select Dividend ETF could save you a lot of trouble. Instead of trying to figure out which foreign dividend stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on foreign dividend stocks, sports a relatively low expense ratio -- an annual fee -- of 0.6% and recently paid a solid dividend yielding about 4.6%. It's on the small side, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has outperformed the MSCI EAFE index over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why foreign dividend stocks?
We should have some geographical diversification in our portfolios to offer a chance of offsetting losses when the U.S. economy or stock market slumps. Foreign dividend stocks offer an extra bonus, as dividends can be quite powerful. Internationally reaped ones can be a little more complicated than domestic ones, though.

More than a handful of foreign dividend stocks had strong performances over the past year. Banco Santander jumped 26% and recently yielded about 7.3%. It has been under pressure from weakness in Europe, but that has been abating. What many miss about the Spain-based bank, though, is its geographic diversification, with substantial operations in faster-growing Latin America and South America. Banco Santander's most recent quarter featured deposits up 5% and loans down 2%, as well as a CEO proclaiming, "After several years of high levels of write-offs and reinforcement of capital, Banco Santander is preparing for a new period of increased profitability." Many, such as Fool U.K. commentator Royston Wild, see Banco Santander as rather attractive.

Orange , formerly known as France Telecom, popped 22% and recently yielded about 5.4%. It has been shedding some noncore assets and focusing on some faster-growing ones. It has a lot of debt but is working on paying that down. In its last quarter, revenue dropped a bit, but subscribers grew -- to 175 million. Analysts at Zacks Equity research expect Orange to benefit from growing 4G LTE use. Some balk at Orange's steep P/E ratio, but others point to strong cash flow, relatively low competition, and emerging-market potential.

Seadrill advanced 21% and recently yielded about 8%. The deepwater drilling specialist has been executing well and dominating its realm, in part via aggressive financing and high debt. Still, its backlog was recently $19 billion. Seadrill's third quarter featured revenue rising 17% and topping expectations, but earnings came in a little short. Seadrill's fleet is more more modern than those of its peers, and it has more rigs under construction than some key rivals, too.

PDL BioPharma gained 18%, collecting royalties from a slew of medications. Its dividend yield was recently 6.4%. Investors have worried about its sustainability, since many of the company's revenue streams will dry up in coming years as patents expire. Combating that, PDL BioPharma has been adding new royalty steams to its mix, such as some from DepoMed. In its third quarter, the company posted revenue up 14%, but estimate-missing earnings that were up 13% over year-ago levels.

The big picture
If you're interested in adding some foreign dividend stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Seadrill. The Motley Fool recommends Orange (ADR) and Seadrill. The Motley Fool owns shares of Orange (ADR) and Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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