The current financial upheaval isn't making you anxious about the market, it's making you nervous about your money.  You want to know if your bank is in trouble, if your retirement funds are safe and if your stocks are going to lose even more of their value.

     That's a lot to worry about.  And a lot of people should be worrying.  No sector is safe.  There's not a 401(k) balance in the country that doesn't suffer from a 777-point drop in the Dow (the exact decline we saw on Monday, Sept. 29th).  The market is tumultuous, and even with a government bailout, many portfolios will continue to be in the red for some time.  In fact, given market conditions and growth projections, we think a complete turnaround -- just getting back to square one from where we are now -- could easily take years.

     But that doesn't mean you should put your money under the mattress.  There are steps you can take to protect your money.  It reminds us of the adage about safety in numbers -- especially when those numbers are dividend yields.  The best first step you can take is to investigate high-yielding international companies.

     Here are three reasons why international income investing -- generating cash returns through the world's best dividend-paying companies -- is the most prudent type of equity investing in today's market.

     Safety Factor No. 1:  Dividend-Payers are Found in Mature Industries

     Money always goes where it is treated best -- that's one of two immutable laws of economics.  Investors demand a rate of return and they'll put their money to work someplace else if they don't get it.

     That return can come either from capital gains or cash payments in the form of dividends.

     Capital gains are contingent upon an increase in the share price -- otherwise we're talking about a capital loss.  In general terms, stock prices are tied to earnings performance and expected future earnings performance.  If earnings rise and continue to rise and the market is willing to pay more and still more for the shares, then even a short-term investor may be able to make money.

     But some companies just can't grow:  A power company already has all the customers in town, and its rates are regulated, so its ability to increase earnings is limited.  So to reward investors, and make up for the lack of strong growth, these companies pay out a portion of their net earnings to their shareholders.

     Startups, for example, don't pay dividends.  They're focused on increasing earnings so as to drive their share prices ever higher.  There's nothing wrong with this strategy, neither for a company nor for an investor, so long as both parties remember that it's not sustainable for the long term.

     An enterprise can only grow so fast for so long.  If a company with $5 billion in annual revenue were to grow at a 30% annual rate, it would have $1.2 trillion in revenue after 20 years.  That's obviously not very likely: At some point in that progression, the growth rate would slow.  In fact, it has to.  Otherwise, in another 10 years, that one company would have revenue equal to the entire U.S. gross domestic product.

     To seize upon an example from the headlines, we'll look at Research in Motion (Nasdaq: RIMM), the maker of the popular BlackBerry smartphone.  The company's shares lost more than 27% last Friday after the company's earnings report.  The report said net income had jumped 72% during the second quarter -- an announcement most CEOs would absolutely kill for.  But investors pilloried the stock.  They sold it as fast at they could, sending shares to a 52-week low.  Why?  RIMM issued a lower-than-expected forecast for the current period.  When growth is the reason investors buy, they sell -- and quickly -- when the growth seems to stall, even after a tremendously successful quarter.

     Mature, dividend-paying companies are far less subject to such volatile ups and downs.  Phone companies, utilities, life insurers, chemical manufacturers -- these and other mature industries produce goods and services that are vital no matter the state of the economy.

     These vital industries are not particularly compelling stories.  In fact, they're pretty mundane compared with a fascinating product like the BlackBerry.  But would you rather see a news headline everyday that moved your stock 5% one way or the other, or would you rather see one headline every quarter announcing the board had declared yet another dividend?

     The BlackBerry is essentially a communications device.  People use it to make phone calls and send email when they're away from their desks.  That's still the phone company's primary job -- most homes and nearly every office or business still have a landline.  Wireline is a predictable, safe, mature industry, and wireline providers generate a tremendous amount of cash, which many of them pass along to their shareholders. 

     The chart below shows the progression of an old-line European telephone company's annual dividend payment for the past five years.  Even as people embraced the BlackBerry and the iPhone, this company's wireline business still made an absolute fortune, which it passed to its owners.



     In a volatile, down-trending market -- when safety is of paramount concern -- would you rather bet on a wild-card earnings release, or would you rather invest your money in a stable company in a mature industry that has delivered steady dividend increases?  

     Safety Factor No. 2:  Cash is King

     When you invest in a dividend-paying stock, you're not betting on the next earnings release to drive your gains further, you're going to put your share of this quarter's results in the bank.

     Above, we mentioned that Research in Motion reported a +72% year-over-year increase in its 2Q net profit.  But it passed exactly zero of those dollars to its shareholders -- and, in fact, its earnings outlook cost shareholders more than $15 billion in lost market cap in a single day.  But our dividend-paying company, above, passed nearly every dime of its good fortunes along.

     From 2003 to 2007, as its revenue and net profits grew, it increased its dividend +141%.  And that payout couldn't just disappear into the ether, like the paper wealth created by a rising (or inflated) stock price.

     Dividend payments aren't guaranteed, of course, but once they've been paid, that gain is yours to keep -- it's money in the bank.

     Safety Factor No. 3:  Geography

     Dividend-paying stocks trade in markets all around the world.  In fact, most countries pay dramatically higher yields than U.S. companies.  It's not just because U.S. companies are focused on growth, it's because our tax system discouraged dividends for years by taxing them twice.

     But the United Kingdom, New Zealand, Italy, Sweden and dozens of other markets pay out roughly twice what U.S. companies do.  Why invest in U.S. companies that pay an average 2.5% dividend when you can latch onto Italy's 7.1% average yield? Plus, you'll be paid in a strong currency like the euro, which further increases your returns.

     Even setting aside the current market turmoil caused by the crisis in the financial sector, U.S. companies are responsible for only a quarter of the business transacted on earth.  Three-quarters of all economic activity occurs without us -- often in economies that not only offer richer dividend payouts, but which are also seeing substantially stronger economic growth.

     What's more, investing in these markets has never been easier.  Instant communication and online trading platforms have brought the world's markets very close.  In fact, they're only as far away as your computer.  You can buy securities in almost any international market using your current brokerage account.

     Millions of investors unnecessarily limit their options to domestic equities.  History shows that this, in turn, limits their gains.  The U.S. benchmark S&P 500 has lagged the world's market indices for most investors' lifetimes.  But another S&P index, one that tracks the world's strongest dividend players, has been among the leaders, beating most high-growth markets over the long term.  Investors who are seeking shelter from the current market flux can simply follow the money -- and 74.6% of it is outside of U.S. borders. 

     The Second Law of Economics

     The legendary investor Benjamin Graham -- Warren Buffett's mentor -- said the most important element of any investment was its margin of safety.  Your portfolio likely lacks much of a protective moat, as most U.S. investors stick with domestic stocks.  But an international income-oriented portfolio offers three elements to increase your margin of safety: Mature industries that pay cash dividends in stable countries with strong currencies and healthy economies. 

     Earlier in this piece, we spoke of the two immutable economic laws.  The first, as you may recall, is that money always goes where it is treated best.  The second law is that people always act in their own ultimate best interest.

     Our premium High-Yield International newsletter brings subscribers the best dividends in the world -- stocks like the European telecom we mentioned above that Nick Lanyi was recommending to his subscribers nearly 10 months before the subprime crisis obliterated Wall Street.  While the rest of the market is worried that the sky is falling -- and, in fact, when the sky actually fell --  High-Yield International subscribers kept cashing double-digit dividend checks.

     Editor Nick Lanyi, in addition to writing painstakingly researched feature-length reports, manages two portfolios -- "Reliable Income" and "Ultra High Yield" for subscribers to mirror.  And those who have heeded Nick's favorite picks have seen returns of +12.7%, +16.8% and even a whopping +22.6% so far this year -- all while the U.S. market has cratered, losing more than -20% of its market value.

     It's time to protect what you've worked hard for.  Waiting around for the U.S. market to come back could take years -- years in which your assets could be working for you all over the world.  Go here to learn how you can ensure that your international journey takes you to the most profitable ports of call with High-Yield International.




-- Nick Lanyi
Editor, High-Yield International