A record setting 367 companies reduced their dividends during the second quarter, no doubt leading many shell-shocked investors to conclude that income is dead.

But there’s more to this story. A total of 283 companies actually said that they boosted their payouts, and an even-larger group of companies maintained their current dividend payouts, Standard & Poor’s Inc. reported.

Not surprisingly, each of the two groups of companies featured some defining characteristics. The companies that had cut their dividends were largely domestic in nature, or at least had a decidedly domestic emphasis. By and large, the firms that were able to maintain or even boost their quarterly payouts were internationally focused, with the potential for some explosive business growth in the world’s key emerging economies.

A Tale of Two Markets

To understand the divergent fortunes of the two groups of companies, just look at the divergent performance of the two world economies that are most talked about today: The United States and China.

At the time of this dividend report’s recent release, the U.S. stock-market benchmark – the Standard & Poor’s 500 Index – was up a respectable 7.26% so far this year.

By comparison, China’s Shenzhen 100 Index had quietly risen 110.10% during that same period.

Such a steep run-up in stock prices often spooks investors. That’s understandable. We always evaluate such situations with caution, too.

But while most investors are worried China’s stock market could take a tumble, we would look at it as a minor near-term setback – and a major long-term profit opportunity.

Even with the double-digit – or triple-digit – run-ups the stocks of many China-based companies have already experienced, many Chinese companies remain stunningly compelling buys, especially when they feature solid dividend payouts, as well.

And China’s not the world’s only upbeat investing opportunity. The story is much the same in other parts of the world, too. Right now, there are more than 100 international income funds that feature yields of 6% or better.

So how do you tell which companies have a promising payout future? Or which ones figure to be dividend duds?

There are three key areas to examine.

International Sales: It goes without saying that fast-developing economies such as China and India will almost certainly leave their U.S., European and Japanese counterparts in the dust.  Therefore, it makes sense to begin the hunt for the world’s best dividend players by looking at companies with a significant business exposure to these and other emerging markets.

If this causes you to step out of your investing “comfort zone,” well, let’s just say that’s great.

Some 74% of the world’s economic activity currently takes place beyond U.S. borders, so it makes no more sense to confine yourself to U.S.-only investments than it does to make the same mistake twice.

My favorites include companies that derive 40% or more of their sales from the Pacific Rim, as well as from China. The fact that China’s been growing at a double-digit clip for years means that other countries in that region are experiencing spin-off growth. Taiwan, for instance, has solid manufacturing ties with Mainland China – and the relationship between those two one-time political sparring partners is closer than ever, thanks to several trade agreements signed in recent months.

Granted, one can make all sorts of arguments about the sustainability of China’s growth, but history shows that you are better off hitching your wagon to strong horses than weak ones. Because most people still tend to view China as a Third-World, Communist-led, economically backward country, they’re often stunned to discover that China has had the world’s largest gross domestic product (GDP) for 18 of the last 20 centuries.

And it soon will again – and probably a lot sooner than most investors are prepared to accept.

In fact, I’m predicting that China’s stock markets could have a larger market capitalization than their U.S. counterparts within the next five years, but that’s a story for another time.

Payout Ratios: This is one measure that allows you to gauge the relative security of your investment in any given company. In case you’re not familiar with the term, a payout ratio is the percentage of a company’s profit that it pays out to shareholders in the form of dividends.

While there are exceptions, if the payout ratio approaches 100%, and the choice I’m considering is not a Canadian Trust or Limited Partnership created expressly for dividend-payout purposes that, to me, constitutes a waving red flag. If business conditions plummet, or management doesn’t have as good a handle on cash flow as it thinks it does, any decrease in earnings will obviously affect future dividend payout plans.

On the other hand, if the payout is around 50%, history suggests that this is a sustainable level and that management is unlikely to severely decrease the company’s dividend payment. That’s barring a catastrophic earnings reversal, of course.

Distribution Source: Thanks to all manner of accounting tricks – politely called “adjustments” in corporate accounting-speak – it’s harder than ever to determine where a company’s income is coming from. For example, some investments – especially Canadian Income Trusts and shipping partnerships – prefer to pay dividends from available cash flow, as opposed to bottom-line profits, like most other public companies.  That can increase the aforementioned payout ratio, and can also mislead investors as to the sustainability of future dividend payments.

But you should look anyway.

Generally speaking, dividends come from earnings, making them reasonably predictable. The stuff that isn’t predictable is often the result of special distributions based on short-term or long-term capital gains. Because this type of income often results from one-time sales of assets, or from accounting transactions, they are usually paid semi-annually or annually (as opposed to being paid quarterly, which is the common practice among most U.S. public companies). And while these “special dividends” can provide a nice bump in payments, don’t confuse this type of payout with the cash you received from ongoing operations.

The other type of payout that can throw a monkey wrench in things is called a “return-of-capital” event. While it can result in big cash payments that investors enjoy tremendously, it’s not a regular payout, either. Like the short-term and long-term distributions we just discussed, return-of-capital transactions are not part of regular earnings. They’re typically the result of tax savings, depreciation or other changes in the assets a firm owns. Write-downs and write-ups are good examples of what I’m talking about here.

Either way, return-of-capital transactions are a danger sign in my book because the firm may be trying to return your original investment – which is a strategy often pursued when a dividend cut is imminent and not yet announced.

And that’s the last thing you should want right now.

Source: The Secrets to Global Dividend Investing

YANGTZE RIVER, CHINA – The sky is a brilliant blue, the wind clean and crisp and the China where National Guide Ju Hao works resembles the landscape we’re passing – a jumbled mix of the old and new, and a backdrop to a lifestyle that’s suddenly changing much too fast.

“It’s dramatic,” says Hao, sweeping his hand through the air for emphasis. “Yes …that’s definitely the word for it.”

The rolling hills of China’s Yangtze River valley provide the most graphic and concentrated evidence we’ve seen yet of the change that is modern China.

As far as we can see, there are crumbling old houses built hundreds of years ago and communist-era “flats” – apartments – set low against the hills. Behind them, and set higher, are sparkling new ferro-concrete relocation villages.

But there are no cars, and almost no people visible. Most of the “new villages” don’t have electricity or running water. And their residents remain farmers who head out each day to work the dramatically terraced fields that rise precipitously above the gorge.

It’s as if the new is fleeing the old, yet somehow remains tied to it. But it’s the red lines, and the accompanying signs that read “175 meters” that are perhaps the most sobering hint of the change that’s to come, for the lines and signage serve to warn passersby where the water will be next year when the reservoir of the massive Three Gorges Dam is finally full.

The surface of the water already has risen up and over the 150-meter mark. It’s odd to think that …as we move along the water’s surface …there are entire villages – even cities – far below us, down in the blackness, beyond the reach of the sun’s rays.

“It’s hard to imagine what’s happening in China” Hao said, reflecting upon his life.

Born in a centuries-old hutong – the narrow streets or alleys that are part of life in old Beijing. This one wasn’t too far from Tiananmen Square, meaning he grew up among the poorest of the poor.

His family shared their courtyard residence with seven other families – perhaps 35 people in all – in a space designed and built for a single family. There was no running water and only a single community bathroom that was literally just a hole in the ground.

“We were poor” Hao says. “Very poor.”

Even so, he says, “my earliest memories are very happy ones.” Hao recalls playing with other children as in the alleys as they waited for their parents to draw water each morning.

“We didn’t lock our doors – we didn’t have to,” says Hao. “Our dreams were simple. Any family having a bike, TV, radio or simply a sewing machine was envied.”

Changes Begin

The first hints of change came while Hao was in high school. Then, during his high school years Hao recalls the first glimmers of change. The Cultural Revolution – with all its pain and chaos – finally came to an end, and true reform was able to take hold.

For Hao, the most magic of moments came when he learned that the farmers were suddenly allowed to grow what they want. That meant he could put food on his family’s table. Even today, roughly two decades later, the memory of that singular event is both moving and highly personal for Hao.

He recalls the amazement he felt when the country’s domestic “apple” jeans became the Chinese Prada garment of their day. Almost overnight, he says, “the green, black, gray and brown Mao jackets vanished,” only to be replaced by fashions that raised more than a few old-generation eyebrows. “Suddenly we could listen to Taiwanese pop music.”

“At that point,” Hao recalls today, “we knew change was real. In more ways than one.”

Hao’s father, a career customs officer who spoke French, English and Chinese fluently, suddenly died, leaving Hao – as the eldest son – responsible for everything.

“It was …how do you say …a ‘rude awakening’,” Hao says, his eyes misting a bit at the memory.

It was just about that time that Hao’s grandfather offered a bit of advice that Hao recalls even today: He told Hao to “eat foreign rice,” meaning that Hao should find a career that puts him squarely in front of the changes that would be opening China up to international influences. He also told Hao that he absolutely needed a college education to compete.

“He was a very wise man,” Hao says. “Even back then, even though he would not live to see it, he knew my best future would be to get an education and to work with the coming changes rather than [to] run from them.”

So that’s just what he did.

Stepping Into the Future by Stepping Out of The Past

Hao graduated from high school just after the Tiananmen Square protest of 1989, and began selling newspapers, doing odd jobs, accepting manual labor positions, and working at any job that he could find.

Not only did Hao get into college, he earned enough to pay for his tuition and support his family at the same time. And, in doing so, he became “self-sufficient” – a concept that could not even be imagined by prior generations.

Hao notes that “since before I was born, Chinese have been taught to be part of a collective group. You are always part of something else. Now it’s different.”

“Now,” Hao observes, “we Chinese can be individuals. And, we can have individual value.”

That’s something, he says that previous generations couldn’t imagine. Even now, after all the changes that have taken place, Hao says it’s a concept his mother still cannot accept or understand.

During college, Hao finally got his shot at “foreign rice.” He took – and passed – the National Guide License Exam. At the time, “it was harder than college entry boards and still is,” an elite examination, he notes with pride.