In the 16th century, European adventurers sailed across the Atlantic to a new land, in search of better lives than they could find in the Old Country. Their settlements grew into colonies that eventually became the United States of America, now the world's largest economy by far.

       For decades, American investors have had little reason to send their assets on an overseas journey. Our own stock market offered solid long-term returns with acceptable volatility, and our bond markets provided a range of alternatives with higher or lower yields depending on the degree of credit and interest-rate risk. By contrast, international investments tended to fall into one of two categories: slow-growth bores (European and, recently, Japanese stocks and bonds) or boom-and-bust roller coasters (emerging-market stocks and bonds).

       Times have changed.

       Although the U.S. economy remains the world's mightiest, the forces of globalization have helped create attractive investment opportunities throughout the world, including in places previously considered only by the most adventurous financial explorers. The end of the Cold War, the near-universal acceptance of capitalism and the ubiquity of online and wireless communication have resulted in falling trade barriers, rising liquidity and truly global markets. In the 21st century, limiting one's portfolio to U.S. stocks is akin to keeping one's television tuned to one channel -- you'll find some enticing offerings, but you'll miss out on so much more.

       That's especially true for high-yield investors.

       For a variety of reasons, the average publicly traded large-cap U.S. firm carries a lower dividend yield than those in many other countries. That doesn't mean you can't find plenty of excellent high-yield opportunities on American soil; some of the world's best high-income stocks are U.S.-based. But to truly maximize the income-generating power of your portfolio, it makes sense to diversify geographically with smart investments in foreign securities. After all, more than half of the world's market capitalization now lies in non-U.S. stocks -- and in many countries, higher-yielding stocks are the norm, not the exception.

       Another reason to look overseas: faster economic growth. The U.S. economy is expected to grow slowly in the coming years, but many other nations' are expected to boom. Now is a perfect time to increase your overseas exposure. Although we may not see a repeat of the enormous gains enjoyed by many international stock markets over the past several years, the party is not over by any means.

       Finally, I believe that over the next year or two the U.S. dollar is likely to fall versus many of the world's currencies. That could be a significant plus for U.S. holders of foreign stocks, because the value of their investments would rise in U.S. dollar terms.

       Let's examine each of these three factors in depth . . .

       HIGHER YIELDS OVERSEAS

       The bar chart tells the tale. The average stock in the S&P 500 Index -- the benchmark for U.S. large-cap stocks and thus a reliable proxy for dividend-paying U.S. stocks -- sports a dividend yield of just 2.1%. But in many countries around the world, the average stock offers a significantly higher yield.

       This phenomenon has occurred for three main reasons.

       First, until 2003 the U.S. government taxed dividends as ordinary income -- creating an incentive for companies to deploy excess cash in other ways. It's simply part of U.S. corporate culture for CEOs and directors to make acquisitions, repurchase shares or expand the business rather than pay dividends to shareholders. After all, these shareholders would immediately lose a portion of those dividends to Uncle Sam. Although qualified dividends are now taxed at a lower 15% rate (causing an increase in the amount of companies paying dividends), corporate America has not adjusted its cash-deployment strategy, on the whole.

       Second, many of the largest foreign companies derive from or remain state-owned entities or regulated monopolies. These types of enterprises tend to grow slowly but steadily. As a result, they can reward their shareholders with high current income in lieu of significant share price appreciation.

       Third, the largest companies in emerging markets need to offer higher-than-average yields to attract foreign investors. They realize that the high growth potential they offer to investors is mitigated somewhat by the above-average volatility associated with emerging markets. So they offer high dividend payments to entice investors from developed countries, including deep-pocketed institutional investors. 

       The high yields also serve another purpose: providing protection against precipitous share-price declines. That's because a lower share price results in a higher yield, assuming the dividend amount stays the same. At some point, this yield becomes enticing enough to attract investors back into the stock. As a result, solid dividend payments can help put a floor on a firm's share price.

       The bottom line is that investors looking for stable, high-yielding investments should definitely take a close look at the vast array of choices overseas.

       STRONGER GROWTH OUTSIDE THE U.S.

       After a surprisingly strong economic run that started in 2001, the U.S. economy began to slow in 2007 and is expected to chug along fairly slowly in the coming years. That's OK -- a so-called "soft landing" is preferable to a recession. But slower economic growth limits the potential for most companies to grow rapidly; that means fewer companies will be likely to post strong earnings and cash-flow growth, which likely will rein in overall stock market returns.

       What's an investor to do? As you can see from my chart, you should look overseas, where many economies are growing faster than our own.

       In 2007, for the first time in six years, Europe was expected to grow faster than the U.S. In the past, the American economy usually was more vibrant than those of the Old World; the U.S. has also bested Japan in the economic growth department for most of the past 15 years. However, Japan may actually post higher gross domestic product (GDP) growth than the U.S. over the 2007-2008 period.

       This is remarkable because the U.S. is by far the world's largest economy. It has long been understood that our own levels of economic activity drive supply-and-demand around the world. But the dependency of the rest of the world on America's economic strength is waning. It used to be said that when America sneezes, the world catches a cold. Now, it's more like a sniffle.

       The reason is globalization and the wealth-spreading effects that flow from it. Consumers, producers, exporters and financiers who once depended on the U.S. now can turn elsewhere. The global economy used to resemble a bicycle wheel with the U.S. in the middle, the fixed spokes radiating out representing our purchases and sales with all the other players. In the 21st century, it makes more sense to imagine an intricate spider's web; the U.S. remains central, but globalization allows strong but flexible strands to be woven constantly, in all directions.

       What does this mean for investors? Simply that diversifying overseas is more important than in the past. Just as the correlation between the U.S. economy and those overseas has weakened, so has the correlation between U.S. stock-market returns and those in other countries. When the U.S. slows, money will flow to international markets offering greater returns.

       There's another reason to invest overseas. The world is witnessing something unprecedented: a sustained economic boom among so-called emerging markets (some of which have already emerged to join the world's largest economies). Again, globalization is driving this phenomenon. And because this trend is likely to last for many years to come, it represents a terrific investment opportunity.

       China and India, the two largest countries by population, have been growing at double-digit annual rates for most of this century. Eager to catch up to the world's economic superpowers, both countries are investing tens of billions of dollars in infrastructure projects -- roads and bridges, power plants and water systems, wireless and Internet networks, even factories and cities. Similar trends are in place in Brazil, Russia and other countries, such as South Korea, that have less distance to make up but still can grow more rapidly than the U.S., Western Europe and Japan.

       The great news is that even as these emerging markets enjoy a building boom, other emerging markets are benefiting by supplying the raw materials needed for all this infrastructure construction. Commodity prices around the world are on the rise, thanks to old-fashioned supply-and-demand dynamics, and commodities account for a substantial portion of many emerging nations' economies.

       The strong economic growth in emerging markets won't continue in a straight line for all eternity; these markets remain more volatile than the U.S. The siren song of emerging-market returns of recent years might tempt you to steer your whole financial ship into these potentially hazardous waters, but I think some caution is warranted. Invest in these exciting areas, but limit your exposure.

       In fact, rather than chasing securities willy-nilly around the world in search of the highest growth, smart investors tend to maintain a permanent stake in foreign securities -- both in developed and emerging economies -- to hedge against slow periods in the U.S. and to boost returns and dividend yields. That's the approach I advise taking.

       Note also that when it comes to high-income investments, some of the booming emerging markets offer slim pickings. China, for example, is not a hotspot for high-yield stocks; companies there are more likely to invest free cash back in the business. But the growth of China, India and the rest is nonetheless important to income investors because it helps fuel growth in other fast-growing countries -- such as South Korea and Malaysia -- that include more than their fair share of high-yielding stocks.

       THE U.S. DOLLAR IS FALLING

       The third leg supporting the case for international high-yield investing involves the U.S. dollar. Several factors are contributing to a long-term weakening in the greenback's value versus other world currencies; this trend is not consistent or unbroken, but I think it is decisive and will continue for some time to come.

       As described earlier, one reason is simply that the U.S. economy is growing more slowly than many other economies around the world. The likely result is that U.S. interest rates will remain flat or decline while interest rates overseas will rise. Central bankers tend to respond to periods of slower economic growth by lowering rates, the resulting low-cost capital helps businesses expand which ultimately stimulates the economy.

       Higher interest rates, however, attract bond investors searching for better yields. So I expect money to flow out of U.S. bonds and into foreign bonds in the coming years, which means investors will be selling dollars and buying foreign currencies. (The currency impact will be mitigated a bit by the fact that some foreign bonds are traded in U.S. dollars, but the overall effect will be to erode the dollar's value.)

       Reason two is that the U.S. dollar and U.S. Treasury bonds have long been the investments of choice for other countries and institutions looking for a "safe haven" to stash extra cash. That's unlikely to change overnight, but most economists believe that countries such as China, which holds enormous investments in Treasury securities and other dollar-denominated debt, will look to diversify their stakes over time. (In fact, Chinese officials have recently announced their intention to do exactly that in the coming months and years.)

       That's especially true if the U.S. continues to run significant trade and government budget deficits. In effect, Americans' current quality of life is being funded by borrowing from other countries. We're good for it -- much of that "borrowing" is in the form of investments by China and others in Treasury bonds and U.S. stocks -- but this trend can't continue for long without one or more negative consequences that U.S. policymakers are eager to avoid.

       So while I don't foresee a wholesale shift away from the dollar, I think it's no longer rational to assume that foreign countries and investors will continue indefinitely to prop up demand for U.S.-denominated assets to the extent they have in recent years.

       What does a falling dollar mean for investors? Simply put, the value of assets denominated in dollars will fall relative to other currencies -- and vice versa. Investors who own foreign stocks while the dollar is falling will see the value of their investments rise in dollar terms. That goes for dividends, too; because overseas dividends are set in foreign-currency terms (for example, one euro per calendar quarter), dividend payments will effectively increase in value as the dollar declines.

       In conclusion, a falling dollar will boost both capital gains and the effective dividend yield of foreign stocks.

       MORE GAINS AHEAD

       The themes described above aren't new. In fact, my new research partners at StreetAuthority.com have kept a close watch on the international story for years, scoring some real winners along the way. For example, in August 2006, Carla Pasternak and Paul Tracy made a decisive bet that the euro would rise against the dollar, and in the process, they profiled nine high-yielding European stocks. Over the next year, all nine stocks had risen -- for an average gain of +122%.

       I certainly can't promise that every call I make will more than double your money in just 12 months. But I think there's more upside ahead in the international high-yield arena. After all, each and every one of the positive trends I just outlined should continue for years to come. We're no longer in the early innings -- particularly when it comes to the emerging-markets growth story -- but we're far from the end of the game.

       In the coming months and years, I'm going to work hand-in-hand with StreetAuthority's research team to identify attractive high-yielding investments around the world that I think offer the potential for outsized gains and safe, predictable, above-average dividend yields over the next year or two. In the coming weeks, I look forward to providing you with further reports, as well as a closer look at some of my favorite international stocks with double-digit dividend yields.

      In the meantime, to learn more about my High-Yield International newsletter, please visit this link.

-- Nick Lanyi
Editor, High-Yield International