With the U.S. stock market at record levels, we know it’s tough for income investors to find good deals among domestic stocks.
In fact, addressing “income tunnel vision†is becoming quite a common theme here at Wall Street Daily.
My next recommended course of action will not only provide the opportunity to generate a decent dividend yield, but it could also help protect you from potential economic meltdowns…
I’m talking about diversifying outside of the United States.
Of course, international stocks can bring country risks and impose withholding tax problems on U.S. investors… but there’s one place where neither of those problems arise and the dividend pickings are sometimes rich: Canada.
Interestingly, Canadian shares are a relative bargain today. You see, Canada’s economy receives a strong endowment from natural resources, so its currency tends to decline when resource prices are in retreat, as they are now. Yet non-resource corporate earnings are likely to be strong, and a currency rebound would give U.S. investors additional gains as Canadian dollar earnings, share prices, and dividends become worth more in U.S. dollars.
In addition, the 2008 crash proved that Canada’s banking regulation was superior – and less extreme – than U.S. policy. Add to that a stable and capable government, and Canada can be seen as a highly attractive investment destination.
Plus, Canadian dividend payout rates tend to be slightly higher than in the United States, so there are a number of Canadian corporations with dividends in the 4% to 6% range that make them attractive to income investors.
Canada also imposes no withholding taxes on dividends paid to individual U.S. investors. Thus, investors can buy Canadian shares in a tax-advantaged account such as an IRA and gain the full benefit of the dividends. Operating Canadian companies can also pay dividends to U.S. taxpaying investors and benefit from the favorable U.S. rates of dividend taxation.
