Though I prefer quarterly dividends, there is something more important than frequency — dividend increases. Below are several companies satisfying their shareholders desire for more cash by increasing their dividends:

Travelers (TRV) is a leading provider of commercial property-liability and homeowners and auto insurance. April 23rd the company increased its quarterly dividend to $0.36/share. The dividend is payable June 30, 2010, to shareholders of record as of the close of business June 10, 2010. The ex-dividend date is June 8, 2010. The yield based on the new payout is 2.85%.

Costco Wholesale (COST) operates about 565 membership warehouses in the U.S., Puerto Rico, Canada, the U.K., Taiwan, Japan, Korea, and Mexico. April 23rd the company raised its quarterly dividend 14% to $0.205/share. The dividend of $.205 per share is payable May 21, 2010, to shareholders of record at the close of business on May 7, 2010. The ex-dividend date is May 5, 2010. The yield based on the new payout is 1.39%.

Holly Energy Partners (HEP) operates refined product pipeline and terminal facilities. April 23rd the partnership raised its quarterly distribution to $0.815/unit. The distribution will be paid May 14, 2010, to unitholders of record May 4, 2010. The ex-distribution date is April 30, 2010. The yield based on the new payout is 6.98%.

International Paper (IP) is a leading worldwide producer and distributor of printing papers and packaging products. On April 26th the company increased its quarterly dividend to $0.125/share. The dividend is payable June 15, 2010 to shareholders of record on May 17, 2010. The ex-dividend date is May 13, 2010. The yield based on the new payout is 1.85%.

Alliance Holdings GP, L.P. (AHGP) produces and markets coal primarily to utilities and industrial users in the U.S. It offers a range of steam coal with varying sulfur and heat contents. April 26th the partnership increased its quarterly distribution 2.8% to $0.465/unit. The distribution is payable on May 20, 2010, to AHGP’s unitholders of record as of the close of trading on May 13, 2010. The ex-dividend date is May 13, 2010. The yield based on the new payout is 5.49%.

Community Bank System (CBU) provides financial services in upstate New York, and in northeastern Pennsylvania as First Liberty Bank & Trust. April 26th the company raised its quarterly dividend 9.1% to $0.24/share. The dividend is payable on July 9, 2010, to shareholders of record as of June 15, 2010. The ex-dividend date is June 11, 2010. CBU is a Dividend Achiever and has paid a higher dividend for 17 consecutive years. The yield based on the new payout is 3.89%.

Inergy Holdings (NRGP) operates a retail and wholesale propane supply, marketing and distribution business. April 26th the company increases its quarterly distribution 3.7% to $0.975/unit. The distribution will be paid on May 14, 2010, to unitholders of record as of May 7, 2010. The ex distribution date is May 5, 2010. The yield based on the new payout is 5.31%.

EarthLink (ELNK) is one of the largest U.S. Internet service providers, based on paying subscribers. April 27th the company increases it quarterly dividend to $0.16/share. This increase will be reflected in the next quarterly dividend to be paid on June 28, 2010 to shareholders of record on June 14, 2010. The ex-dividend date is June 12, 2010. The yield based on the new payout is 6.88%.

Williams Partners (WPZ) engages in gathering, transporting, processing, and treating natural gas, as well as fractionating and storing natural gas liquids. April 27th the company increases its quarterly distribution 3.5% to $0.66/unit. The distribution is payable on May 14, 2010, to unitholders of record at the close of business on May 7, 2010. The yield based on the new payout is 6.31%.

IBM (IBM) products and services include information technology services, software, computer hardware equipment, fundamental research, and related financing. April 27th the company raised its quarterly dividend 18% to $0.65/share. The dividend is payable June 10, 2010 to stockholders of record May 10, 2010. The ex-dividend date is May 6, 2010. This is the 15th year in a row that IBM has increased its quarterly cash dividend, and 7th year in a row of double-digit percent increases. With the payment of the June 10th dividend, this Dividend Achiever will have paid consecutive quarterly dividends every year since 1916. The yield based on the new payout is 2.02%.

Sunoco Logistics Partners LP (SXL) owns and operates a group of refined product and crude oil pipelines and terminal facilities. April 27th the company increases its quarterly distribution 2.3% to $1.11/unit. The yield based on the new payout is 6.54%.

WW Grainger (GWW) is the largest global distributor of industrial and commercial supplies such as hand tools, electric motors, light bulbs and janitorial items. April 28th the company raised its quarterly dividend 17% to $0.54/share. April 28th the company raised its quarterly dividend 17% to $0.54/share. The dividend is payable on June 1 to shareholders of record on May 10. The ex-dividend date is May 6. GWW is a Dividend Aristocrat and has paid a higher dividend for 39 consecutive years. The yield based on the new payout is 1.99%. See recent analysis.

Exxon (XOM) is the world’s largest publicly owned integrated oil company. April 28th the company raised its quarterly dividend 4.8% to $0.44/share. The dividend is payable on June 10, 2010 to shareholders of record of Common Stock at the close of business on May 13, 2010. XOM is a Dividend Aristocrat and has paid a higher dividend for 28 consecutive years. The yield based on the new payout is 2.54%.

Chevron (CVX) is a global integrated oil company that has interests in exploration, production, refining and marketing, and petrochemicals. April 28th the company increased its quarterly dividend 5.9% to $0.72/share. The dividend is payable June 10, 2010, to holders of common stock as shown on the transfer records of the Corporation at the close of business on May 19, 2010. The ex-dividend date is May 17. The amount represents a 5.9 percent increase in the company’s quarterly dividend. CVX is a Dividend Achiever and has paid a higher dividend for 23 consecutive years. The yield based on the new payout is 3.37%.

Sturm, Ruger & Co. (RGR) designs, manufactures, and sells firearms to domestic customers; it offers products in four industry product categories: rifles, shotguns, pistols, and revolvers. April 28th the company raised its quarterly dividend 55% to $0.093/share. The dividend will be paid on May 28, 2010 to stockholders of record as of May 14, 2010. The ex-dividend date is May 12, 2010. The yield based on the new payout is 2.16%.

TransAlta Corp. (TAC) is an independent power producer and wholesale marketing company owns a portfolio of generation assets in Canada, the United States, Mexico, and Australia. April 29th the company increased its quarterly dividend to $0.29/share. The dividend is payable July 1, 2010 to shareholders of record at the close of business June 1, 2010. The ex-dividend date is May 28, 2010. The yield based on the new payout is 5.59%.

Cullen/Frost Bankers (CFR) is the largest multi-bank holding company headquartered in Texas, has more than 80 offices in various cities in the state. April 29th the company increases its quarterly dividend 4.7% to $0.45/share. The dividend is payable June 15, 2010 to shareholders of record on June 1, 2010. The ex-dividend date is May 28, 2010. CFR is a Dividend Achiever and has paid a higher dividend for 16 consecutive years. The yield based on the new payout is 3.02%.

Duff & Phelps (DUF) is an independent financial advisory company operates worldwide in two segments, Financial Advisory and Investment Banking. April 29th the company raised its quarterly dividend by 20% to $0.06/share. The yield based on the new payout is 1.50%.

Frequency of dividends increases is one of the most important things to consider when adopting a dividend growth investment strategy. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long MCD, AOD, CVX, O, PG, JNJ. See a list of all my income holdings here.

(Photo Credit)

When I started investing in dividend stocks for income, I did as most new income investors – I chased yield. To make things worse, I had success early on. At one time I had a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. The portfolio’s yield was consistently in the low to mid-teens. I remember once being disappointed in buying a stock that only yielded 8%.

As I continued to read and learn about investing in dividend stocks, it became apparent that I was doing it the wrong way. I started to unwind my high-yield strategy and move into more traditional dividend stocks. However, the high-yield strategy was still experiencing some success so I did not move as fast as I should and ultimately suffered some unnecessary losses.

My portfolio still carries some remnants of my high yield investing days with stocks such as:

• Integrys Energy Group Inc. (TEG) – Yield: 7.62% – Div. Growth: 1.5%
• National Retail Properties (NNN) – Yield: 6.75% – Div. Growth: 1.4%
• Realty Income Corp. (O) – Yield: 6.33% – Div. Growth: 2.1%
• Health Care Property Investors, Inc. (HCP) – Yield: 6.12% – Div. Growth: 1.1%

None of the above stocks are currently on my buy list, mainly due to their underlying fundamentals. I suspect over time they will work their way  out of my portfolio.

The focus of my income portfolio is now on blue chip dividend stocks with a long record of growing their dividends. Examples of companies I now follow include:

• Johnson & Johnson (JNJ) – Yield: 3.18% – Div. Growth: 7.5% – Analysis
• The Coca-Cola Company (KO) – Yield: 3.05% – Div. Growth: 7.9% – Analysis
• Abbott Laboratories (ABT) – Yield: 3.48% – Div. Growth: 8.4% – Analysis
• Emerson Electric Co. (EMR) – Yield: 3.21% – Div. Growth: 6.4% – Analysis

You will notice the yields on each of these stocks are much lower than those in the first group, but they provide a much stronger dividend growth rate.  Over time their yield on cost will grow much faster than the first group, thus have a good chance of producing more income.

That is not to say I have completely walked away from high yield investments.  Like salt and pepper, I use them to add a little flavor to my income portfolio, but in limited and controlled portions. Here are some high yield securities that I hold that have performed well for me:

• Alpine Total Dynamic Dividend Fund (AOD) – Yield: 15.74%
• Eaton Vance Tax Advantaged Global Dividend Fund (ETO) – Yield: 7.33%
• CenturyLink Inc. (CTL) – Yield: 8.86%

AOD and ETO are ETF’s that pay a steady monthly dividend, but each has cut the dividend over the last 12 months. CTL’s dividend has been flat at $0.70/share for 5 straight quarters. If you invest in such securities, you should understand the inherent risk and limit your exposure. I likely will always have a place in my income portfolio for riskier securities, but as I grow older the place will grow smaller.

Full Disclosure: Long ABT, AOD, CTL, EMR, ETO, HCP, JNJ, KO, NNN, O, TEG. See a list of all my income holdings here.

(Photo: Gravity X9)

A couple of years ago, I started adding select ETFs and CEFs to my income portfolio. At the time, my thought process was that these funds would diversify my risk and add a degree of stability to my income portfolio. Initially, I had high hopes for their success.  Here’s what I am holding and a synopsis of how they have performed:

Vanguard Financials ETF (VFH)

Vanguard® Financials ETF seeks to track the performance of a benchmark index that measures the investment return of financial stocks.

I first purchased VFH in August 2007. Like the financials it tracks, VFH’s dividend has steadily fell from $0.45/share in October 2007 to $0.06/share in March 2009.

PowerShares International Dividend Achievers Portfolio (PID)

PID seeks to match the performance of the International Dividend Achievers Index by investing at least 90% of its total assets in dividend paying common stocks of this index. This index tracks the performance of dividend paying American Depositary Receipts or ordinary stocks trading on the NYSE, NASDAQ or AMEX.

I initially invested in this fund back in July 2008.  It has paid out three dividends since then, each less than the one before (9/08-$0.14/share, 12/08-$0.09/share and 3/09-$0.03/share). Not a good trend.

Vanguard REIT ETF (VNQ)

Vanguard® REIT ETF seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of a benchmark index that measures the performance of publicly traded equity REITs.

I initiated my VNQ position in August 2007.  VNQ’s dividends have been unpredictable and inconsistent.

SPDR S&P Dividend ETF (SDY)

The Fund seeks to replicate as closely as possible, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index. The Fund uses a passive management strategy designed to track the price and yield performance of the Dividend Index.

I first purchased SDY in August 2007. I have received seven dividends ranging between a low of $0.4410 (April 2009) to a high of $0.5917 (January 2009). I found it somewhat odd that the low and high dividends both came in 2009.

Vanguard High Dividend Yield ETF (VYM)

Vanguard® High Dividend Yield ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yields.

I first bought into VYM in August 2007.  It dividends have slowly drifted lower since that time. They have not been as volatile, but there is no question as to the direction.

Vanguard Dividend Appreciation ETF (VIG)

Vanguard® Dividend Appreciation ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.

VIG is another ETF that I first purchased in August 2007. During the time I owned it, VIG’s dividend has flucuated between $0.22/share and $0.28/share.

Eaton Vance Tax-Advantaged Global Dividend Opportunity (ETO)

ETO is a diversified, closed-end management investment company. The Fund’s investment objective is to provide a high level of after-tax total return. It invests primarily in dividend-paying common and preferred stocks.

I first purchased ETO in July 2008. ETO paid a steady dividend of $0.1795/share through December 2008. It then dropped its dividend to $0.1167/share.

Alpine Total Dynamic Dividend Fund (AOD)

AOD attempts to optimize both dividend income and long-term growth of capital. This is a very diverse and flexible fund. It employs a global, multi-cap, multi-sector, and multi-style investment approach. The fund combines four research-driven investment strategies – Growth, Value, Special Dividends, and Dividend Capture Rotation.

I first purchased AOD in December 2007. It paid monthly dividends of $0.18/share through February 2009 before cutting its monthly dividend to $0.12/share.

Vanguard Long-Term Bond ETF (BLV)

The Fund seeks to match the investment performance of the Lehman Brothers Mutual Fund Long Government/Corporate Index. Holdings include Corporate Notes/Bond 51.5%, Treasury Notes/Bonds 40.2% and Government Agency Securities 6.5%.

I first purchased BLV in December 2008. Since that time I have received five dividend all approximately $0.34/share. This has been the one bright spot amoung the group. As a long-bond fund, it has behaved as I expected it would.

Conclusion

Back to the original question: Are Exchange Traded Funds (ETFs) and Closed Ended Funds (CEFs) a good fit for this dividend investing? At this point, I would say no, for the most part. For many of the same reasons that international investments are not a good fit for a dividend-based investing strategy, I have found the same true with ETFs and CEFs.

It has been my experience that ETFs/CEFs dividends exhibit a higher degree of volatility than individual dividend stocks. Since most of the above funds are based on an index, they are forced to buy the bad stocks with the good stocks. This will inherently increase the volatility of the funds dividend payments. Those with international holdings are subject to currency conversion and a different dividend payout philosophy. In the income portion of my portfolio, I place a great deal of value on stability and consistency. ETFs and CEFs have a difficult time delivering either.

The funds are listed is ascending order from least desirable to most. I have already stopped purchasing the above funds, except BLV.  I will now work on eliminating or minimizing my position in most of them, starting at the top of the list and working down.

Full Disclosure: Long VFH, PID, VNQ,  SDY, VIG, VYM, ETO, AOD, BLV.  See a list of all my income holdings here.

I. International Fund in my 401(k)

This International Equity Index Fund seeks to match the performance of the MSCI EAFE Index which consists of approximately 1,200 stocks in 21 developed market countries outside of North and South America, and represents approximately 85% of the total market capitalization in those countries.  When compared to other options in my 401(k), I have been generally pleased with this funds performance over time. YTD Return:  (-7.2%)

II. International Exchange Traded Funds (ETF) Within My Asset Allocation Portfolio

The international component on my asset allocation portfolio is in iShares MSCI EAFE (EFA).  EFA seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the European, Australasian and Far Eastern markets, as measured by the MSCI EAFE Index. This fund is tracking the same index as my 401(k) above, but with somewhat better results. YTD Return: (-5.1%)

III. Individual International Dividend Stocks

It was my desire to have international representation within my income investments, so I first looked to identify good non-U.S. dividend individual stocks that had an ADR trading on the New York Stock Exchange.  To identify these stocks I used the International Dividend Achievers™ list.  To become eligible for inclusion, a company must be incorporated outside of the United States. The companies must be have an American Depository Receipt or common stock trading on NYSE, NASDAQ or AMEX. Companies must have paid increasing regular annual dividends for five or more consecutive years. What I found is that most companies outside the U.S. follow a different dividend model.  Here are some of the differences:

• Many Foreign Companies Pay Dividends Based on a Percent of Earnings
  This produces a very erratic cash stream. Consider Unilever plc (UL). Its ADR paid $0.353 in Nov/07, $0.668 in May/08 and $0.33 in Nov/08.
• Many Foreign Companies Only Pay Dividends Annually
  I need more feedback than this. I would hate to wait a full year before learning a company plans to slash its dividend. Examples of annual dividends include Shenandoah Telecommunications Co. (SHEN), Siemens AG (SI) and Stryker Corp. (SYK).
• Most Foreign Companies Pay Dividends in Their Local Currency
  Most Canadian companies pay quarterly consistent dividends, similar to companies in the U.S. However, they pay the dividends in Canadian dollars, so the currency risk is with the U.S. investor.  There is probably much less fluctuation between the U.S. and Canadian dollars than most other currencies. However, it exists. Consider the last five dividends on Canadian National Railway Company (CNI): Mar/08 $0.223, June/08 $0.225, Sep/08 $0.217, Dec/08 $0.189 and Mar/09 $0.200. The quarterly dividend dropped 10% from Mar/08 to Mar/09 in U.S. Dollars while it increased its dividend 10% over the same period in Canadian dollars.

I am sure there are more, but one exception to all the above is BP plc (BP). BP’s ADR has paid a consistent quarterly dividend denominated in U.S. dollars.

IV. International Income ETFs and Income Closed-End Funds (CEFs)

One thought was that a market basket of international stocks in either an ETF or CEF would help mitigate some of the issues above. Many of these created problems of their own. Some such as Alpine Total Dynamic Dividend Fund (AOD) has the option to invest in the U.S. also and when things turned ugly, they brought the cash home.  Other funds such as Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) and PowerShares International Dividend Achievers Portfolio (PID) have not performed well as dividend investments. Each has cut its dividend, with PID cutting multiple times.  I now question the wisdom of ETFs and CEFs inclusion in an income portfolio, but that is a different discussion.

Conclusion

After much consideration, I have concluded that income investing and international securities don’t mix very well for all the reasons listed above.  Going forward, my primary focus will be on U.S. equities for my dividend income portfolio.  I will use my 401(k) and my Asset Allocation Portfolio to ensure an adequate international allocation. As for the securities that I currently hold, I will individually evaluate the appropriateness of them remaining in my portfolio. Consistent with this methodology, I will remove most International Achievers from the Stock Ideas page, leaving only those that I own or have identified as being an excellent income investment.

Full Disclosure: Long EFA, CNI, BP, AOD, ETO, PID

My goals were defined in this December 1, 2007 Investing Goals post and updated in my 2009 Investing Goals post. I am pleased to note that both of my goals were achieved in 2008 – not may investors can say that. Below is an updated version of the table found in the original post.

The above information covers the current month and year-to-date through the current month.

Click here for a Detailed Historical Progress Table.

For the month, annualized dividend income increased $80, and Yield on Cost (YOC) decreased -0.10%. These changes were driven by new purchases, dividend changes and sales. Let’s examine each of the these categories:

Purchases: The $362 increase in annual dividend income and 0.30% increase in YOC related to the following purchases (yield at the time of purchase):

• $46 MFC (4.56%)
• $56 BLV (5.16%)
• $150 ED (5.87%)
• $49 LLY (5.15%)
• $61 CTL (9.78%)

All except ED and CTL lowered my YOC. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.

Dividend Changes: The ($77) decrease in annual dividend income and (0.07%) decrease in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):

• ($64) SDY $2.99a>$2.21a -0.07%
• ($7) CNI $0.2277q>$0.18852q -0.01%
• $1 O $0.14112m>$0.1418m 0.01%
• $1 SYY $0.22q>$0.24q 0.01%
• ($8) ETO $2.15a>$2.09q -0.01%

The decrease in CNI was due to currency conversion resulting from a strengthening U.S. dollar compared to the Canadian dollar. SDY and other ETFs/CEFs dividend volatility continue to concern me.

Sales: The ($108) decrease in annual dividend income and (0.06%) decrease in YOC related to the following sale:

• ($108) : AOD : (0.06%)
• ($97) : PFE : 0.00%

As previously discussed, I am over-allocated in AOD and ETO from a dividend income standpoint. I continue to reduce my allocation in each by selectively selling a portion of my holdings. This will position me to better withstand a dividend cut from them. PFE was sold after its January dividend cut.

That’s it for this time. The next monthly progress update will be on Saturday, March 7th.

(Photo: sanja gjenero)

• Determining Risk And The Risk Pyramid
• ING Financial Services
• AOL Money and Finance

Once you know your investment risk profile, how do you gauge the risk of individual securities in your portfolio or your portfolio as a whole? I tend to weigh the risk on my portfolio as a whole and make adjustments through the selection of more or less risky investments. For my dividend stocks I look at these measures:

1. S&P Qualitative Risk Assessment + S&P S&P Quality Ranking
My broker provides S&P reports on individual securities and most ETF/CEFs. As part of this report S&P includes a Qualitative Risk Assessment and Quality Ranking. They define these as such:

• Qualitative Risk Assessment: The S&P equity analyst’s view of a given company’s operational risk, or the risk of a firm’s ability to continue as an ongoing concern. The Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS universe, and should be reflective of risk factors related to a company’s operations, as opposed to risk and volatility measures associated with share prices. The rankings include Low, Medium and High.
• S&P Quality Ranking: Growth and stability of earnings and dividends are deemed key elements in establishing S&P’s Quality Rankings for common stocks, which are designed to
  capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings from highest to lowest: A+, A, A, B+, B, B-, C, D and Not Ranked.

For my tracking purposes, I combine the two into a RQ (risk/quality) rating and assign A (low), B (medium) or C (high) for the Qualitative Risk Assessment and 1 (A+) to 8 (D) for the Quality Ranking. Thus a company such as Coca-Cola (KO) that has a Low Qualitative Risk Assessment and a Quality Ranking of A would be represented as an A2 company in my system. Here are some combined rankings on several popular dividend company’s:

• General Electric (GE): B1
• U.S. Bancorp (USB): A3
• Johnson & Johnson (JNJ): A1
• United Technologies Corp (UTX): A1
• Procter & Gamble Co. (PG): A1

Currently, I don’t have any C stocks. My most risky stocks have a rating of B4. I like use this metric to evaluate my dividend stock portfolio in total. The weighted average of my dividend stock portfolio is A3. I am comfortable with that rating, but under the right circumstances I would be willing allow it to fall to B2. If the overall portfolio fell to a B (moderate risk), I would limit the S&P Quality Ranking to a 2 (A). I would never want the overall S&P Quality Ranking to drop below a 3 (A-). Click here to see the RQ rating for all my dividend stock holdings.

2. Current Dividend Yield and NPV of MMA Differential
All things being equal, higher risk stocks command a higher dividend yield. Consider these two extremes:

• Wal-Mart (WMT) – 1.81%
• CenturyTel (CTL) – 11.30%

If you had to invest your life’s savings in only one of the above stocks, which would you choose? Your answer will reveal something about your risk tolerance. Obviously, the market believes that WMT is less risky than CTL.

When judging risk I like to look at current dividend yield in conjunction with

NPV of MMA Differential. A high yield and a high NPV of MMA Differential could indicate a risky stock. Here are some risky stocks and ETF/CEFs that I am holding based on a high current yield and NPV of MMA Differential:

• Alpine Total Dynamic Dividend Fund (AOD) – 29.8% yield – $1.9 Billion NPV of MMA Differential
• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) – 17.3% yield – $115,498 NPV of MMA Differential
• CenturyTel (CTL) – 11.3% yield – $3,487,677 NPV of MMA Differential
• Paychex Inc (PAYX) – 4.94% yield – $531,399 NPV of MMA Differential

Many of the recent companies that I sold after a dividend cut resided at or near the top of this list when they cut their dividend. Of the two methods, I have found the second one to be a better indicator of future performance.

In addition, I also look at the current market price vs. my calculated Buy Below price. A large disparity indicates the market believes the stock will perform much differently in the future than it has in the past. As with any forward looking exercise, it is a mixture of art and science.

Full Disclosure: At the time of this writing, I was long in GE, USB, JNJ UTX, PG, WMT, AOD, ETO, CTL, PAYX

1. Number of Dividend Payments per Year
Most international countries pay dividends only once or twice a year – far less than the quarterly dividends that we Americans have grown accustomed to. For me dividends are one form of feedback as to how well the company is performing. I prefer more feedback to less.

2. The Amount of the Dividend Payments
It is the custom in many international countries to payout dividends as a fixed percentage of earnings each year. This will often result in larger overall payouts, but the payouts are irregular. In America we are accustomed to steady growing dividends, valuing consistency over maximum payout.

3. The Amount and Timing of Taxes on Foreign Dividends
Most foreign countries will deduct their tax before sending you the dividend. Fortunately, most have treaties with the U.S. where you can claim a credit for the tax withheld.

4. Currency Risk
Recently as the U.S. dollar has strengthen vs. other currencies, I have seen a steady decline in the dividends received, even though none of the securities have lowered their local currency dividend.

5. Risk of Political Unrest
That wonderful dividend company you found may be located in a not so wonderful country. An unstable geopolitical environment can potentially destroy a company that is under its control.

International Income Exchange-Traded Funds (ETF)/Closed-End Funds (CEF)
I have tried to increase my international exposure by purchasing ETF/CEFs with a high percentage of international stocks. Below are three that I currently own:

• Alpine Total Dynamic Dividend Fund (AOD)
• Eaton Vance Tax-Advantaged Glbl Div Opp (ETO)
• PowerShares Intnl Dividend Achievers Ptf (PID)

The problem with this route is the investment quality, or lack thereof. These funds have woefully underperformed my individual dividend stocks.

Individual International Income Stocks
If individual stocks are out-performing the above ETF/CEFs then why not focus on individual international dividend stocks? I currently hold the following ADRs:

• BP Plc (BP)
• Canadian National Railway Company (CNI)
• Manulife Financial Corp (MFC)
• Royal Bank of Canada (RY)

That is three Canadian and one British company. Not much diversification there. It shouldn’t be surprising that the two countries represented above are those whose culture, government and financial markets are most similar to the U.S. Most international companies that meet my financial criteria are disqualified based on one of the five issues listed above – generally #1. I refuse to buy a dividend stock that pays less frequently than semi-annual.

Conclusion
If the numbers do not work, you should never force-buy any security just to meet an allocation. I will continue to look for promising international income ETF/CEFs and individual stocks, but I will not buy any securities below my minimum standards. I will rely on my 401(k) and capital appreciation portfolio to meet the majority of my international allocation.

Disclosure: Long AOD, ETO, PID, BP, CNI, MFC, RY