International Investor: At first glance, some foreign telecom stocks appear to be paying huge dividends to their shareholders, which could make them seem like safe investments. But taxes take a big bite out of dividend payments. And there is also the problem of whether or not the dividend data are accurate.

We've all bought things based on some piece of information that turned out to be flawed or just flat-out wrong. On more than one occasion I've purchased seats on discount airlines based on a friend's assurance that 'actually, the service is good, and the seats are comfy.' But even the discomfort of enduring a dawn flight from Detroit to New York that was host to rude attendants and a dog that relieved itself in the aisle is no match for the discomfort of investors learning that the numbers they based their stock picks on are flawed.

Be it a cheap airline ticket or an overlooked stock, we all want to believe we've stumbled on a bargain. And in times like this, investors aren't only looking for attractively valued stocks, but some that have security as well. Stocks that pay dividends, for example, are somewhat more stable investments. When looking for technology and telecommunications stocks that paid dividends higher than the S&P 500's average and also traded for less than 30 times 2001 earnings estimates, we were somewhat surprised to notice that of the 26 companies that came up, 12 were foreign companies and 11 were foreign telecommunications companies. Given the market's recent performance, the high dividends of foreign telecommunications companies seem mighty appealing.

Telefўnica de Argentina's (NYSE: TAR) dividend yield of 10.2 percent seems impressive, until you notice Indonesian Satellite's (NYSE: IIT) 14.3 percent yield, or the Brazilian Telecommunica‡oes de Sao Paolo's (NYSE: TSP) whopping 21.5 percent. But before you click over to your online brokerage account, here's a warning: those numbers are fiction.

There are two reasons for the misinformation surrounding dividend yields of foreign companies. Foreign taxes, for one, will certainly eat into your dividend. After the bank (likely Bank of New York or JP Morgan Chase) holding the American Depository Receipts (ADR) subtracts the taxes for you, you might be left with a dividend more reminiscent of American utility stocks. Even more disconcerting than high taxes, though, is the difficulty in determining exactly what a company's dividend yield is. There is really no single, completely reliable source -- short of calculating it yourself from the company's quarterly reports. You'll find that one stock might have a variety of yields attached to it, depending on your source -- and we're talking about generally reliable sources -- such as Bloomberg, Baseline, and JP Morgan Chase's ADR.com.

UNTANGLING THE WIRES In the case of Indonesian Satellite (Indosat), for instance, the 14.3 percent figure appears to be the result of multiplying its October quarter 2000 dividend by four and dividing by the stock price, which is how one typically calculates a yield. The problem, though, is that Indosat only paid dividends out twice last year -- and only once in 1999. 'They don't have a predictable payment policy,' says William Valentine of Valentine Ventures. 'They're not going to pay out 15 percent a year; at best, it will be 6 percent.' But Indosat, which provides international switched telecom services, including telephone, telex, telegram, packet-switched data networks, and Internet services, could prove to be a good buy for other reasons.

In February, the company announced an asset swap with Telkom Indonesia that would give Indosat $346 million to help build its cellular network, as well as a 30 percent stake in Satelindo, the country's No. 2 cellular operator. The restructuring is aimed at resolving the two companies' complex cross-shareholdings. The decision removes a significant amount of uncertainty from the telecom sector in Indonesia, according to ABN AMRO analyst Matt Evans, and will result in a reduced-risk premium that will pave the way for foreign investment. France Telecom (NYSE: FTE) has indicated an interest in acquiring an Indonesian partner, as has AT&T (NYSE: T). In the past, this sort of investment would have been impossible with the prior cross-shareholdings in place.

But there is another aspect of the asset swap that makes Indosat -- which has $327 million in trailing 12 months of revenue -- seem particularly appealing. The company will sell its 35 percent stake in Telkomsel, the No. 1 cellular operator, to Telkom Indonesia for $945 million. With net cash of $235 million and a market capitalization of $1.1 billion, that leaves the rest of Indosat's core business valued at less than nothing. That cash should enable the company to continue to pay its whopping 14.3 percent dividend if earnings are less-than-robust, although earnings are forecasted to grow at 11 percent. At its recent price of $10.60, Indosat trades at an almost unheard of five times 2001 earnings of $2.14 and has a price-to-earnings growth ratio of .5.

STOCKS THAT WON'T FLOAT Perceived high-dividend yields can also be the result of a radical decrease in the shares' public float. Telefўnica de Argentina, for instance, had been half-owned by Telefўnica of Spain (NYSE: TEF). The 10.2 percent reported dividend was more a factor of Telefўnica increasing its stake in Telefўnica de Argentina to 90 percent in January. Too many sources used the new float and the old dividend to come up with the double-digit figure. At Monday's closing price of $26.75, Telefўnica de Argentina trades at 11 times expected 2001 earnings of $2.43 per share. Given its 16 percent growth rate, the company has a price-to-earnings growth ratio of .7. So although Telefўnica de Argentina -- which has $3.6 billion in revenue and ownership of virtually all public exchanges, the network of local telephone lines, and the principal domestic long distance telephone transmission facilities in the southern half of Argentina -- might seem cheap, we see no reason to buy the stock because there is such a small float. You could just buy Telefўnica instead.

The same goes for Telecommunica‡oes de Sao Paolo, better known as Telesp Participa‡oes. The sole provider of local and long distance fixed-line telecommunications services in the Brazilian state of Sao Paulo, Telesp has $3.2 billion in revenue, but its 21.5 percent dividend is not what it seems -- thanks to a Telefўnica investment, share float was reduced, and the dividend artificially inflated.

So the dividends of Latin American telcos may not be as stellar as they look at first glance. But that doesn't mean there aren't some interesting opportunities -- many encapsulated by Telefўnica -- which we'll investigate next week.