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International Shares as part of High Yield Portfolio

General discussions about equity high-yield income strategies
Walrus
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International Shares as part of High Yield Portfolio

#158890

Postby Walrus » August 12th, 2018, 8:56 am

I am contemplating supplementing my HYP with some international shares. I was wondering if anyone had much experience in this area, in both selection and the mechanics of receiving dividends. I hold none dividend companies in my growth portfolio such as Amazon and MSG so have the US forms etc.

Thanks in advance

Walrus

Raptor
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Re: International Shares as part of High Yield Portfolio

#158899

Postby Raptor » August 12th, 2018, 9:45 am

I realised that I did not know enough about International Shares that were paying a decent yield and did not want or need to go into any "withholding taxes" etc. BUT, I wanted international exposure for my HY portfolio, so went down the IT route, which has been enlightening for me. Have you thought about that route?

Interesting point on my ITs is that the "capital" gain on them has been a welcome change to watching my HYP shares "wobble". Though all my ITs are in my SIPP, which I hope will stay intack. Last year the "income" from the different aspects were:-

The income yield. Very strange results (or maybe not), I actually achieved an overall 5.41%, with both IT's and Shares having the same % (last year IT's 4.96% and Shares 5.59%). The "actual" amount of income grew slightly, which surprised me considering what I did over the year. What was this per unit, IT's 53p (last year was 49p), Shares 50p (last year was 51p). Units started out as £10 per unit, they ended the year as, IT's £10.05 (last year £10.09) and Shares £8.53 (last year £9.66).


see for full portfolio at year end.. JETI has been added since and MCT is at median now.

Raptor.

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Re: International Shares as part of High Yield Portfolio

#158900

Postby richfool » August 12th, 2018, 9:50 am

I don't want the aggravation of holding international shares directly, (e.g the extra admin, research, exchange rate costs, broker holding fees or tax implications etc), so I get my exposure through a selection of investment trusts. One can pick specific geographical sectors like Europe or Asia Pacific, or simply hold a couple of global growth & income trusts.

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Re: International Shares as part of High Yield Portfolio

#158903

Postby bonrepos » August 12th, 2018, 10:03 am

I think a good start would be to go to the AIC site, put in specific regions ie global income,south east asia ex japan,global emerging etc and filter via dividend yield. This will give you the best investment trust candidates for income.

Then you can look at each investment trust's past historical return over 1,3,5 and 10 years ( yes, I know that history is no guide to future results but
it gives some perspective) and decide which you are comfortable with for future investment.

Hope this helps.

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Re: International Shares as part of High Yield Portfolio

#158905

Postby vrdiver » August 12th, 2018, 10:08 am

Walrus wrote:I am contemplating supplementing my HYP with some international shares. I was wondering if anyone had much experience in this area, in both selection and the mechanics of receiving dividends. I hold none dividend companies in my growth portfolio such as Amazon and MSG so have the US forms etc.

Thanks in advance

Walrus

I have a US broker with holdings outside of any tax shelter (apart from the W8-BEN). I receive dividends in USD which I allow to accumulate and either reinvest or withdraw to my GBP bank account if I don't need USD. The transfer to GBP costs me £25, so not worth it for smaller amounts.

I have to fill in the "foreign dividends" section of my self-assessment, but it's no worse than the UK dividends part if you keep records, but my dealings are simple, so others may have more to say on that!

Selection of shares: obviously you can go more than UK/US, but whichever country your chosen share operates from (from a listing perspective) you face three key issues: tax penalties, currency risk and finally, information+regulation risk.

Tax rules can change, but are fairly clear. Currency risk can go either way unless you are going to spend your dividends in the earned currency. Then, of course, you need a way to access them. The last issue: information and regulation - as a UK investor I feel comfortable with the general flow of gossip re UK shares, but am deaf and dumb to most international shares where the conversation is not in English. Equally, I am less confident of other regulatory regimes so tend to stick to UK/US rather than say, Nordic, South African or Chinese for example (language and/or regulation).

Withholding taxes are annoying unless you can recover (most of) them. They act as a real drag on performance, so unless the company you are selecting can outcompete local options even with this drag, I'd not be tempted (this is for HYP shares, not growth, which is a different discussion!)

As Raptor suggested, ITs have many advantages in getting a good spread of risk, research and automated conversion of payments etc. so unless you are dead set on specific foreign shares, getting foreign exposure via an IT is well worth a look.

VRD

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Re: International Shares as part of High Yield Portfolio

#158911

Postby SalvorHardin » August 12th, 2018, 10:22 am

Mechanics. I've been receiving foreign dividends for almost twenty years. Your tax return requires some extra work as you need to complete the foreign section unless the total annual dividends are below a certain limit (£300 as I type this). Dividends and associated withholding taxes need to be converted into sterling. HMRC publishes its exchange rates on a monthly basis, though in practice they're not going to get upset if you use something like Bloomberg's rate on the date of receipt, unless you're dealing with very large sums.

Don't rule out companies based in countries where you don't speak the language. Quite a few of these, especially the big multinationals, publish their reports (and quite a bit else) in English - it's the international language of business. My two main European holdings, Juventus (the Italian football club) and Terreis (Central Paris property specialist), both do this. To me overseas investment provides an element of diversification that you simply cannot obtain by buying London-quoted shares.

Selection of shares. As others have said on this thread, the extra administration can be avoided by investing in funds. I have several overseas focused investment trusts which have a fairly high yield (e.g. European Assets, Henderson Far East Income, Murray International). But I also hold company shares (my four largest shareholdings are Americans, the fifth is Canadian).

Most countries impose withholding taxes on dividends so the quoted yield is larger than what you actually get (Britain is the major exception - the Netherlands is planning to eliminate its withholding taxes in order to lure Unilever there). These can't be avoided (except in SIPPs). You already know about the W-8BEN form that brokers want you to complete every three years if you own American shares; the 30% withholding tax on American dividends drops to 15% only if you've completed a W-8BEN.

My favourite resources for information on American and Canadian shares are SeekingAlpha and Fool.com (the US Fool is very different nowadays from TMF UK - they still have the message boards and their articles tend to have a lot more information).

Generally the yield on American and Canadian shares is lower than similar companies in Britain. There are a few sectors available overseas that the UK doesn't really have, such as royalty trusts (oil, gas, minerals) with eye-watering yields (but a finite date - they are wasting assets) and Mortgage REITs (quite popular in America, very high yield but very high risk). I've never invested in anything in these sectors. The sort of investor who chases super-high yields and follows strategic ignorance to the point where you follow the company off a cliff will love these companies; I consider that they're as safe as giving a two-year old a box of matches. I've linked below to a couple of good introductory articles on these sectors:

https://www.fool.com/investing/general/ ... rusts.aspx

https://seekingalpha.com/article/411356 ... -explained

The withholding taxes on foreign dividends can be offset against your UK tax liability, in particular the dividend tax (in my case foreign withholding tax exceeds the UK dividend tax).

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Re: International Shares as part of High Yield Portfolio

#158951

Postby monabri » August 12th, 2018, 12:34 pm

If it is part of a high yield portfolio you might wish to consider

Henderson Far East ( HFEL) 5.7%

Murray International ( MYI). 4.3%

Or, lower yield Vanguard High Yield ( VHYL) with its 1287 holdings!

Choosing to invest in individual companies in Singapore, Hong Kong, Australia etc..is difficult....it's hard enough selecting UK based companies so selecting an Investment Trust should be a " safer" route.

Have a look at what the IT holds in its top 10 holdings.

I'd also note down where they are investing, what percentage in each country.

Alternatively, you might chose to select a specific country.

I'd suggest a check at the iShares site as well

https://www.ishares.com/uk/individual/e ... &view=list

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Re: International Shares as part of High Yield Portfolio

#158966

Postby Wizard » August 12th, 2018, 2:02 pm

I hold IBM in my high yield portfolio, which is in my SIPP. In the SIPP there is no US withholding tax complications. I bought this as I could not see a technology share in the UK I liked the look of. Very happy I did not buy Microfocus or Playtech as both have seen significant share price falls since the time I bought IBM. Yes dividends are in US$, but IMHO that is no more of an issue than holding Shell, Vod or Unilever, all of which pay out in something other than £ Stering.

Terry.

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Re: International Shares as part of High Yield Portfolio

#158968

Postby PinkDalek » August 12th, 2018, 2:08 pm

SalvorHardin wrote: … The withholding taxes on foreign dividends can be offset against your UK tax liability, in particular the dividend tax (in my case foreign withholding tax exceeds the UK dividend tax).


If I may and briefly, only in so far as the qualifying (including restricting it to the treaty rate, usually 15%) withholding tax doesn't exceed the UK Income Tax liability on each individual holding. From what you are saying, you are probably taxed at the basic rate on dividends of 7.5%, such that the excess WHT is lost and cannot be reclaimed (not talking about SIPPs/Pensions etc here).

That tax loss is something many are willing to bear, should we be investing directly into overseas shares, subject to our effective UK rate on those dividends. Higher and additional rate taxpayers should get full relief, at the treaty rate of WHT, against their respective Income Tax rates of 32.5% and 38.1%.

As a warning to those who may wish to invest in, say, Nestle directly. The Swiss Tax authorities require 35% to be deducted from Nestle dividends paid to UK individuals. There's a long-winded process involved in eventually getting 20% of the gross dividend back from the Swiss Tax authorities but it has been slightly simplified in recent years. I've been submitting the forms each year, for nearly 40 years, but will eventually get too old to do it myself. I've managed to get the refunds each and every year but it is time-consuming. The remaining 15% is then claimed on my Income Tax Return. If you don't go through the process you are still restricted to that 15% (or 7.5% if basic rate or even less if part or all of the gross dividend is covered by the now reduced Dividend Allowance or even the Personal Allowance).

I only mention all this as we've seen quite a few at TLF not realising they'll be suffering WHT, until they've received the overseas dividends.

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Re: International Shares as part of High Yield Portfolio

#158969

Postby XFool » August 12th, 2018, 2:18 pm

PinkDalek wrote:As a warning to those who may wish to invest in, say, Nestle directly. The Swiss Tax authorities require 35% to be deducted from Nestle dividends paid to UK individuals. There's a long-winded process involved in eventually getting 20% of the gross dividend back from the Swiss Tax authorities but it has been slightly simplified in recent years. I've been submitting the forms each year, for nearly 40 years, but will eventually get too old to do it myself. I've managed to get the refunds each and every year but it is time-consuming. The remaining 15% is then claimed on my Income Tax Return. If you don't go through the process you are still restricted to that 15% (or 7.5% if basic rate or even less if part or all of the gross dividend is covered by the now reduced Dividend Allowance or even the Personal Allowance).

Core! Sounds more trouble than it's worth to me...

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Re: International Shares as part of High Yield Portfolio

#158973

Postby XFool » August 12th, 2018, 2:30 pm

Wizard wrote:Yes dividends are in US$, but IMHO that is no more of an issue than holding Shell, Vod or Unilever, all of which pay out in something other than £ Stering.

RDSB shares certainly pay out in UKP. I just checked my online ISA and the LSE ULVR and VOD both pay their UK dividends in UKP.

It's different with the NYSE listed Verizon.

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Re: International Shares as part of High Yield Portfolio

#158981

Postby Alaric » August 12th, 2018, 2:49 pm

XFool wrote: I just checked my online ISA and the LSE ULVR and VOD both pay their UK dividends in UKP.


ISAs aren't a conclusive example, as foreign currency holdings are not allowed. As a consequence, all such dividends have to be converted immediately. I would have said that all LSE quoted investments pay in sterling, but I'm aware that Glencore doesn't. Investment platforms will vary anyway as to whether they will run a foreign currency account for you. ii is one of those who do.

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Re: International Shares as part of High Yield Portfolio

#159014

Postby ADrunkenMarcus » August 12th, 2018, 4:28 pm

I'd certainly advocate international shares having their place and, indeed, medium and smaller cap UK companies which can be very dynamic. I hold Kone, which has a rock solid balance sheet and great returns. Finland has withholding tax, but you could reclaim it if you hold the shares outside an ISA.

Best wishes

Mark.

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Re: International Shares as part of High Yield Portfolio

#159016

Postby ADrunkenMarcus » August 12th, 2018, 4:31 pm

XFool wrote:Core! Sounds more trouble than it's worth to me...


I dunno.

Nestle has made great returns for its shareholders over four decades, regardless of dividend tax. I'm not sure there was a UK equivalent giving the same sort of international exposure and product lines, although Unilever had similarities.

Best wishes

Mark.

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Re: International Shares as part of High Yield Portfolio

#159019

Postby tjh290633 » August 12th, 2018, 4:33 pm

It is obviously helpful if they are quoted on the LSE, and tax considerations play a part, but if anyone wished to include a non-UK share, there is no obvious reason not to do so, given a suitable yield.

TJH

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Re: International Shares as part of High Yield Portfolio

#159031

Postby PinkDalek » August 12th, 2018, 5:17 pm

ADrunkenMarcus wrote:
XFool wrote:Core! Sounds more trouble than it's worth to me...


I dunno.

Nestle has made great returns for its shareholders over four decades, regardless of dividend tax. I'm not sure there was a UK equivalent giving the same sort of international exposure and product lines, although Unilever had similarities.

Best wishes

Mark.


Indeed and it might be relevant as to the size of a holding and how one values one’s time with regards to reclaiming the withholding tax.

My time is my own and the reclaim process, although bothersome, pays at a more than enticing rate per hour, given how long I’ve held. I don’t have the detail but I think it is only in fairly recent years that Nestle has paid at a relatively decent yield, about 3% or so. Some might not bother reclaiming the 20% but hold because of what it is.

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Re: International Shares as part of High Yield Portfolio

#159032

Postby ADrunkenMarcus » August 12th, 2018, 5:20 pm

PinkDalek,

If you've held Nestle for forty odd years then I'm sure you've received more in dividends (both in real and nominal terms) than the original cost of the shares! Do you mind me asking if you have any records about the performance, or the increase in share price over the period? (I like these real life examples as opposed to the theoretical long holding periods we sometimes hear about in investment articles). If Nestle only ever paid dividends once a year then at least that simplifies things somewhat...

Best wishes

Mark.

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Re: International Shares as part of High Yield Portfolio

#159042

Postby Walrus » August 12th, 2018, 5:47 pm

Thanks everyone.

Initially I was specifically thinking about blue chip global companies in the developed world paying a decent dividend and offer some growth. Companies that immediately appeal to me are Kraft, Pepsi and Nestle, I'll be honest I don't like the drag on income from an investment trust.

In specific scenarios like emerging markets and smaller cap I can see that I am getting added value. On the income side from blue chips I am less convinced of the benefits. That being said the yield on Murray international looks very interesting and trading at a slight discount.

@SalvadorHardin I know it's not am income share but what attracted you to Juventus, I can see that would complement my MSG holding and generally I'm quite bullish on the sports sector.

SalvorHardin
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Re: International Shares as part of High Yield Portfolio

#159057

Postby SalvorHardin » August 12th, 2018, 7:02 pm

Walrus wrote:@SalvadorHardin I know it's not am income share but what attracted you to Juventus, I can see that would complement my MSG holding and generally I'm quite bullish on the sports sector.

Originally I bought heavily into Juventus shortly after A.C. Milan was taken over for around 800 million Euros in August 2016. I already had a few Juventus as a punt so I knew that Juventus was relatively undervalued in comparison give its market capitalisation the was just 230 million Euros. Since Juventus is the biggest Italian football club I took the view that it was worth a lot more so I bought a load. Sold just before the 2017 Champions League final I sold (market cap. then was over 1 billion Euros) making something like 350% profit on the lot.

I kept an eye on Juventus and bought back in last May at just below 60 Eurocents (marke cap. around 600 million euos). The driver was the sale of American sports teams, notably the Carolina Panthers for $2.2 billion, and the strong performance of Madison Square Garden this year. MSG is my largest holding, so I have a fair idea as to what top notch trophy asset sports teams are worth.

For anyone who is wondering, Madison Square Garden owns the New York Knicks basketball team and the New York Rangers ice hockey team. I don't follow either sport. Value MSG as a trophy asset, not an income generating company (Its forecast PE is something like 75, given the prices paid for sports teams it's not too hard to justify a share price of up to 50% above the current level)

I'm having a look at Glasgow Celtic

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Re: International Shares as part of High Yield Portfolio

#159064

Postby XFool » August 12th, 2018, 7:19 pm

Alaric wrote:
XFool wrote: I just checked my online ISA and the LSE ULVR and VOD both pay their UK dividends in UKP.

ISAs aren't a conclusive example, as foreign currency holdings are not allowed. As a consequence, all such dividends have to be converted immediately.

That it was an ISA account is irrelevant. The dividends were paid in sterling. The Verizon dividend was paid in USD (taxed at 15%) and converted.

Alaric wrote:I would have said that all LSE quoted investments pay in sterling, but I'm aware that Glencore doesn't.

Well yes.


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