NEW YORK (TheStreet) -- With market volatility rising, many investors are tempted to turn homeward and focus their portfolios on U.S. companies. It's not a bad strategy, but is does miss the mark -- at least if you are looking for high-quality, low-volatility, solid dividend-paying stocks.
Total (TOT), GlaxoSmtihKline (GSK), Sanofi (SNY) and Royal Dutch Shell (RDS.A) are successful internationally based companies with a respectable performance record (lately they've been outstanding performers), good dividend yields and attractive valuations. What's more, they are as easily available to the U.S. investor as if they were domestic stocks. How? Through American Depositary Receipts, or ADRs.
An ADR makes it as easy for investors to buy shares in a foreign company as it is to buy shares in a domestic one. The ADR is priced in dollars, trades on a U.S. exchange, pays dividends in dollars (the stock's custodian makes the exchange) and the owner of an ADR is not subject to foreign taxes.
ADRs are an often-underutilized tool in diversifying the typical investment portfolio, particularly in gaining international exposure. That said, not all ADRs are the same; as a rule I would avoid the over-the-counter market in favor of those listed on an exchange or quoted on NASDAQ. This is analogous to avoiding penny stocks and sticking with more established enterprises which meet stricter financial reporting standards.
As a side note, at our company we evaluate ADRs with the same criteria as we do domestically based companies. And, for full disclosure, Total, GlaxoSmithKline, Sanofi and Royal Dutch Shell are all part of our "Dividend Buster Program," which focuses on high-quality dividend-paying stocks. The portfolio also includes some great U.S. based companies, such as Johnson & Johnson (JNJ) and Duke Energy (DK).
Evaluating An ADR
Our Dividend Buster Program takes a very disciplined approach to selecting its holdings. We do not discriminate against international companies, but rather focus and seek out those companies that have the following criteria:
- Strong balance sheet
- Visible and predictable earnings
- Above-category growth outlook
- Dividend paying/raising
All four ADRs examined here meet the above requirements.
On page 2, we analyze these stocks.