Although the dividend scene is bumpy this year, some ex-US developed markets offer steady payouts and above-average yields, traits accessible via the ALPS International Sector Dividend Dogs ETF (IDOG ).
IDOG may help investors gain improved risk-adjusted returns to European markets by diminishing downside risk while still participating in upside potential. Furthermore, its dividend focus also helps investors focus on quality companies with a history of growing dividends. There are good reasons to consider IDOG over a traditional, broad developed markets ETF. ’
“High-quality companies often have a defensive bent, making them a welcome addition to a diversified portfolio. They can be less volatile than the market and hold up better during drawdowns,” said Morningstar analyst Daniel Sotiroff in a recent note.
For dividend investors looking for mostly developed market ex-U.S. exposure, IDOG merits consideration. ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November. From there, IDOG is rebalanced quarterly in an effort to keep sector weights in the area of 10% and individual holdings at around 2%.
“Overseas companies that have a history of increasing their dividend payments also tend to have consistent profitable growth,” notes Morningstar. “These types of businesses should be less volatile than the broader market and are likely to hold up better during market downturns.”
Stocks in Europe and in international developed markets often have higher yields than those in the U.S. That means it’s possible to take advantage of a dividend growth strategy and relatively high dividend yields. International dividend growth stocks also come without the added U.S. interest rate sensitivity of high dividend-paying stocks.
One issue for investors to consider is the unusual payment schedules for many foreign dividend companies. While many of those companies pay dividends just once or twice a year, IDOG delivers payouts quarterly, as is the case with many U.S. dividend stocks.
“In a certain way, the lumpy dividend payments made by foreign-stock funds reflect the dividends paid by individual foreign stocks,” said Morningstar. “While some overseas corporations make quarterly dividend payments, a large fraction do not. Many make semiannual distributions, while others payout only once per year. Furthermore, these payments are seasonal.”
Other international developed market dividend ETFs include the FlexShares International Quality Dividend Dynamic Index Fund (IQDY ), ProShares MSCI EAFE Dividend Growers ETF (EFAD ) and the SPDR S&P International Dividend ETF (DWX ).