Investors have plowed their assets into dividends over the last several last months. With their ability to add current income to portfolios, dividends have proven themselves a worthy tool to fight volatility. That said, with the U.S. facing a debt default and ongoing recession/inflation risks, investors may want to look abroad. Quality international dividends offer a solution, available in a pair of ETFs from WisdomTree Investments that recently spiked in popularity.
Should investors be concerned about the risk of a debt ceiling-related default? Expect this edition of the debt ceiling saga to be messy, per WisdomTree’s head of fixed income strategy, Kevin Flanagan. Failure to raise the debt ceiling and U.S. default would severely harm the U.S. Treasury (UST) market, Flanagan outlined. During the 2011 debt ceiling debacle, the Fed and Treasury outlined a delayed payment plan for Treasuries — whether that’s in place, and what harm such delays would have on the market, is unknown.
See more: Is a Recession Inevitable?
Meanwhile, the risk of recession hasn’t exactly gone away. Nor is inflation fully tamed — one more rate hike, anyone? All of these underscore the value of international equities right now — and particularly in quality international dividends.
Digging Into Quality International Dividend ETFs
First off, we have the WisdomTree International Quality Dividend Growth Fund (IQDG ). IQDG tracks the WisdomTree International Quality Dividend Growth Index and charges a 42 basis point fee for its services. The ETF’s focus on dividend-paying stocks from developed markets has brought in $183 million over three months.
IQDG screens for quality and growth based on three-year average ROE and ROA and long-term earnings growth estimates, respectively. IQDG caps each constituent at 5% weight and countries and sectors at 20% weight each. The ETF has provided a 3.2% annual dividend yield while returning 14.7% year-to-date, beating its ETF Database and FactSet averages.
IQDG’s sibling, the WisdomTree International Hedged Quality Dividend Growth Fund (IHDG ), offers a different approach. IHDG tracks the WisdomTree International Hedged Quality Dividend Growth Index for a 58 basis point fee. It largely invests like IQDG, but hedges for currency fluctuations against the U.S. dollar.
IHDG has returned 13% YTD, adding $156 million over the last three months. The biggest point in its favor, however, is its annual dividend yield. According to VettaFi, it has provided more than three times its FactSet and ETF Database average yields at 11.7%.
Taken together, the quality international dividend ETF pair provides some meaningful options for investors. The pair has seen significant increases in advisor attention on VettaFi’s websites, suggesting that investors and advisors are taking notice.
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