3 International Dividend ETFs Your Broker Forgot to Mention
Some long-time income investors know that larger payouts and higher yields can often be with the foreign equivalent of a U.S. stock. For example, BP's (NYSE: BP) current yield is more than double that of Exxon Mobil's (NYSE: XOM). French pharmaceuticals giant Sanofi (NYSE: SNY) yields 30 basis points more than Johnson & Johnson (NYSE: JNJ).
Those are just two examples, but throughout sectors such as consumer staples, energy, health care and telecommunications, investors can usually find a couple of developed market large-caps that offer superior yields relative to their U.S. counterparts.
Still, U.S. equity dividend ETFs have nearly $50 billion in combined assets under management, an amount that dwarfs that of international dividend funds. That does not mean that there are not some developed market dividend ETFs worthy of investors' attention. Consider some of the following ETFs:
PowerShares International Dividend Achievers Portfolio (NYSE: PID) Like many domestically-focused dividend ETFs, PID employs length of dividend increase streaks as part of its screening methodology. However, PID is not as stringent as some U.S. ETFs as the qualification for inclusion here is five years of rising dividends, not the ten or more often seen with U.S. equivalents.
Important to note about PID is that it also weights by dividend yield, not market capitalization, meaning that if/when global high yield stocks fall out of favor, then PID's volatility and downside potential increase. Also adding to the volatility with PID is a more than 20 percent weight to energy stocks, by far the ETF's largest sector weight. Some of those names include Teekay Offshore Partners (NYSE: TOO), Teekay LNG Partners (NYSE: TGP) and Norway's Statoil (NYSE: STO).
Investors can take some comfort in knowing U.S. stocks account for 25.1 percent of PID's weight, although the 30-day SEC yield of 2.62 percent is not particularly jaw-dropping. The U.K. and Canada are PID's next largest country weights, combining for 43 percent of the ETF's weight.
Overall, it is hard to argue with PID's long-term returns. Over the past three years, the ETF is up nearly 30 percent while offering less volatility than and outperforming some developed and developing market dividend ETFs. PID has also outpaced and been less volatile over that time than the iShares MSCI EAFE Index Fund (NYSE: EFA). PID has an expense ratio of 0.56 percent and $779 million in assets under management.
WisdomTree Europe SmallCap Dividend Fund (NYSE: DFE) It is not a stretch to say many investors have heard at least one of the popular emerging markets small-cap ETFs on the market, say the Market Vectors Brazil ETF (NYSE: BRF) or the WisdomTree Emerging Markets SmallCap Income Fund (NYSE: DGS). Given the popularity of those funds, it is almost hard to believe there is just one small-cap ETF devoted to Europe and it is DFE.
Despite the recent Eurozone calamity, including Italy's election results and one index provider demoting Greece to emerging markets status, DFE has actually been an impressive gatherer of assets on a percentage basis. On February 11, DFE had $52 million in AUM. Today that number is over $62.1 million.
The 30-day SEC yield of 3.72 percent is fairly attractive, but with DFE being a small-cap fund, investors need to know what they are getting at the sector level. The ETF is light on traditionally conservative dividend sectors such as staples, telecommunications and utilities and heavy on industrials and discretionary names.
Italy, Spain and Portugal combine for about a quarter of DFE's weight and that might imply an uncomfortable level of volatility for some investors. In reality, DFE's underlying index since inception has had a lower beta and been less volatile than the MSCI Europe Small-Cap Index, according to WisdomTree data. DFE's annual expense ratio is 0.58 percent.
First Trust Dow Jones Global Select Dividend Index Fund (NYSE: FGD) As is the case with PID, the First Trust Dow Jones Global Select Dividend Index Fund offers some level of comfort with an almost 17 percent allocation to the U.S. Additionally, just four Eurozone nations are found among FGD's lineup and Spain is the only PIIGS member represented in this ETF.
With $294.3 million in AUM, FGD has an even more seductive number associated with it: A 30-day SEC yield of 6.12 percent. Looking the ETF's sector breakdown, it is easy to understand why the yield is so robust. Telecommunications and utilities names combine for over 38 percent of the fund's weight.
Another point in FGD's favor is an 18 percent weight to Australia, a high-yield currency nation that has dodged outright recession for over two decades. Sweden and New Zealand, another pair of solid, strong currency nations, combine for another eight percent of FGD's weight. FGD, which has annual expense ratio of 0.63 percent, has a lower beta and standard deviation than MSCI World Index, according to First Trust data.
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