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Three Attractive International Dividend ETFs

May 10, 2013 2:16 pm
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This year may well turn out to be the year of the dividend. In the first quarter, dividend increases by U.S. companies totaled $14.5 billion, according to Standard & Poor's. During the quarter, 944 dividend increases were reported, up from 677 in the first quarter of 2012, said S&P.

Those 944 increases far outpaced the 135 negative dividend actions seen in the quarter. While some talk of dividend insanity and a crowded, overheating market for dividend ETFs, investors are ignoring the noise.

Dividend ETFs attracted $3.4 billion in assets in April, a monthly record high, and through the end of the month had hauled in $10.9 billion year-to-date, according to BlackRock data.

International dividend ETFs are part of this equation, too. In fact, several new global dividend ETFs came to market last month, adding to a growing menu of options for income investors that want some non-U.S. exposure.

FlexShares International Quality Dividend Dynamic Index Fund (NYSE: IQDY)
The FlexShares International Quality Dividend Dynamic Index Fund is among the newest addition to the global dividend ETF fray as the ETF is not yet a month old. IQDY is part of a trio of global dividend ETFs launched by Northern Trust (NASDAQ: NTRS) last month.

IQDY, which has annual expense ratio of 0.47 percent, does things differently than some other dividend ETFs. For example, this ETF does not rank and weight its holdings based on length of dividend increase streaks. Rather, constituent companies are included in IQDY's index are selected based on expected dividend payment and fundamental factors such as profitability, solid management and reliable cash flow, according to the issuer.

At less than a month old, IQDY may be too new for some investors, but the ETF has gained 4.6 percent and attracted $2.6 million in assets since its debut. The U.K. is IQDY's largest country weight, but Japan and Australia combine for over 21 percent. That is an attractive point given how well those equity markets have performed this year.

iShares Asia/Pacific Dividend 30 Index Fund (NYSE: DVYA)
Speaking of Australia and Japan, the iShares Asia/Pacific Dividend 30 Index Fund features an allocation of 45.3 percent to the former and 12.6 percent to the latter. Singapore (18.6 percent), Hong Kong (12.5 percent) and New Zealand (10.5 percent) are DVYA's other constituent countries.

That lineup, comprised of 33 not 30 stocks, implies DVYA is a decent idea for conservative investors. For starters, the fund is obviously not heavy on emerging markets exposure. Second, over 76 percent of the ETF's weight is allocated to countries with AAA sovereign credit ratings – Australia, Singapore and Hong Kong.

Third, DVYA follows a similar sector allocation strategy as many U.S.-focused dividend ETFs as telecom and consumer staples combine for 41 percent of the fund's weight. Financials are the largest sector weight at 23.9 percent.

DVYA has just $45.9 million in assets, a number that is surprisingly small given its trailing 12-month yield of 4.13 percent and year-to-date gain of over 11 percent.

iShares Emerging Markets Dividend Index Fund (NYSE: DVYE)
The iShares Emerging Markets Dividend Index Fund is example of a compelling global dividend ETF where it is fair to wonder why the fund is not larger, though DVYE eclipses the much ballyhooed $100 million in AUM mark with $141.6 million.

DVYE has been a slack performer on a year-to-date basis with a 5.8 percent decline, but things may be starting to look up for the 15-month old fund as it has gained 2.2 percent in the past month. A roughly 36 percent combined allocation to financials and materials names may imply DVYE is a high beta play, but utilities, telecom and consumer goods combine for 37 percent. That helps DVYE's beta against the S&P 500 reside at 0.88, according to iShares data.

DVYE's largest country weights are Taiwan (27 percent) and Brazil (15 percent), but DVYE's correlation to the marquee Taiwan and Brazil ETFs is relatively low. Additionally, DVYE's standard deviation of 9.75 percent over the past 11 months is nearly 500 basis points below that of the iShares MSCI Taiwan Index Fund (NYSE: EWT) and almost 1,000 basis points below that of the iShares MSCI Brazil Index Fund (NYSE: EWZ).

Turkey, South Africa and China round out the top-five country weights. Or investors can just focus on the seductive 7.21 percent 30-day SEC yield.

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