That prompts me to start looking overseas, something I've barely done in the 18 years of running the Bearbull Income Portfolio. True, buying overseas brings risks as well as rewards. An obvious reward created by the prospect of Brexit is the merit of hedging exposure to sterling. Sure, within an equity portfolio some currency hedging comes via those UK-domiciled companies with overseas activities; even so, it may not hurt to give the hedging a sharper edge.
Chief among the risks are the mundane yet vital tasks of ensuring that your broker can actually buy the stock in question and that the dividends reach their destination. Then comes the fun and games of calculating and claiming foreign tax credits. This process is easier for some countries and among the most straightforward is the US, where removing withholding tax from dividends depends on returning a so-called W-8BEN form to the US tax man.
That makes the land of the free a good place to start the search for overseas high yielders and it helps that the US is also the home of the company; or, at least, the place where the company is most revered.
Granted, US shareholders don't attach the same importance to dividends that UK investors seem to. They are relatively content to allow company bosses to reinvest retained profits, at least where the return on capital comfortably exceeds its cost. Even so, the cumulative effect of paying steadily growing dividends combined with the dull performance of shares in mature companies means that high yielders are available; plus, of course, in the US investors are fishing from a far bigger pool than in the UK.
For proof of the availability of high-yield shares in good- quality companies, look no further than the table, which shows the 10 highest-yielding shares from the 30 that comprise the Dow Jones Industrial Average. Yet to describe the likes of Exxon Mobil (US:XOM), Coca-Cola (US:KO) and Procter & Gamble (US:PG) as merely 'good' is to do them an injustice. Sure, their glory days may be over, but these companies continue to epitomise the US corporation - perhaps even US popular culture - and to push out products for which demand will last until an alien flag flies on the White House lawn. With that, comes the ability to churn out rising dividends. At Procter, the dividend has risen every year since 1990 and probably a good bit longer. At Coca-Cola it has risen for the past 54 years.
All the way to America
| Company | Ticker | Div yield (%) | Price ($) | Mkt cap ($m) | PE ratio | Payout ratio (%) | % ch from 3-yr low |
|---|---|---|---|---|---|---|---|
| Verizon Communications | NYSE:VZ | 4.4 | 52.88 | 215,555 | 13 | 62 | 39 |
| Chevron Corporation | NYSE:CVX | 4.2 | 100.93 | 190,407 | 29 | NM | 45 |
| Caterpillar Inc. | NYSE:CAT | 3.8 | 81.69 | 47,726 | 23 | 207 | 45 |
| International Business Machines | NYSE:IBM | 3.5 | 159.55 | 152,505 | 11 | 43 | 37 |
| Pfizer | NYSE:PFE | 3.5 | 34.77 | 210,903 | 14 | 102 | 26 |
| Exxon Mobil Corporation | NYSE:XOM | 3.4 | 87.42 | 362,500 | 24 | 117 | 31 |
| The Boeing Company | NYSE:BA | 3.3 | 131.16 | 81,821 | 13 | 48 | 29 |
| Cisco Systems | US:CSCO | 3.3 | 31.83 | 160,096 | 13 | 44 | 57 |
| The Coca-Cola Company | NYSE:KO | 3.2 | 43.66 | 188,438 | 23 | 77 | 19 |
| McDonald's | NYSE:MCD | 3.1 | 115.83 | 98,845 | 20 | 66 | 32 |
| Procter & Gamble | NYSE:PG | 3.0 | 88.20 | 235,440 | 23 | 71 | 36 |
Source: Capital IQ
Yet the one I want to focus on is airplane maker Boeing (US:BA). That's partly because it should bring useful diversification to the Bearbull income fund. True, I have not yet measured the correlation between its share price returns and those of the income fund. But I would hope they are loose since Boeing is like nothing else already in the fund.
In addition, Boeing is a great company. It has the record; and it has the prospects. As the company's new chief executive, Dennis Muilenburg, says in the latest annual report, the company's output of commercial aircraft will rise by about 30 per cent over the coming five years. That's important since it represents further growth on top of a big figure - Boeing's output rose almost 60 per cent in the four years to 2015 when it delivered 762 planes - and, more than anything, Boeing is a civil aircraft maker; its commercial airplanes division generated $66bn of 2015's $96bn revenue and $5.2bn of its $7.2bn pre-tax profit.
True, Boeing earns its crust in a competitive market, so its profit margins and return on capital are nothing to shout about. But what these metrics lack in size they make up for in consistency. And Boeing has a proven ability to generate free cash far beyond the cost of its rising dividend. It all points to a situation that demands a little research. I'll crunch the numbers, do some reading and report back later this month.
A US company in the income fund? Call it Bearbull's version of Westward Ho!
