Compensation For Globe-Trotting Investors
International equity exchange-traded funds have been popular destinations for investors. With the widely followed MSCI EAFE Index up about 16 percent year to date, investors' enthusiasm for ex-US developed market equities is understandable.
Dividends should not be overlooked in this equation. The iShares International Dividend Growth ETF (BATS: IGRO) is one way for income investors to harness the power of international dividend payers. IGRO, which debuted in May 2016, follows the Morningstar Global ex-US Dividend Growth Index. That benchmark represents 97 percent of ex-U.S. market capitalization, including developed and emerging markets. The index screens for at least five years of uninterrupted dividend growth while screening for companies with the ability to continue raising payouts, according to Morningstar.
While many U.S. investors view this market as the premier destination for dividend stocks, it should be noted that more than half the world's dividend payers actually reside outside the U.S. That underscores IGRO's potential for long-term dividend investors.
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Delivering The Goods
IGRO is up more than 17 percent year to date and was one of several international dividend ETFs to hit all-time highs on Thursday. The ETF has a trailing 12-month yield of 2.4 percent, which says this is not a high-yield strategy. Some high-yield stocks can be susceptible to negative dividend action. Rather, IGRO can be seen more as a quality factor play.
Home to just over 400 stocks, or less than half the holdings found in the MSCI EAFE Index, IGRO caps holdings at a weigh of 3 percent when the fund is rebalanced. IGRO's underlying index requires “that companies have positive earnings forecast and have earnings paid out as dividends that are less than 75 percent,” according to iShares.
The ETF allocates 22.5 percent of its weight to financial services stocks and a combined 30 percent of its weight to healthcare and consumer staples names. Industrial and consumer discretionary stocks combine for 23.5 percent of IGRO's lineup.
Although there are plenty of dividend-paying stocks to be had that are not U.S. companies, some ex-US markets have better dividend reputations than others. Some of the best ex-US dividend destinations include the U.K., Switzerland and Canada. In order, Canada, the U.K. and Switzerland combine for over 46 percent of IGRO's weight.
Japan, a market ripe with long-term dividend growth potential, is 12 percent of IGRO's weight. Germany and France, the Eurozone's two largest economies, combine for almost 17 percent of IGRO's roster.
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