While a stronger U.S. dollar has weighed on international investments, investors can still capture attractive oversea yields with currency-hedged exchange traded fund options.
According to Henderson Global Investors, investors generated $404.9 billion in dividends, down 6.7% year-over-year, due to the strong dollar, but the underlying dividends were up 8.99% year-over-year when excluding currency moves, special dividends and other factors, reports Judith Evans for the Financial Times.
“Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends,” Alex Crooke, head of global equity income at the asset manager, told FT. “A dividend-paying culture is extending into new markets, beyond those where paying an income to equity investors is already deeply entrenched.”
For instance, underlying dividend grow was 8.6% in Europe, aided by strong payouts from Italy, the Netherlands and Belgium. The previous quarter was a seasonal peak for European dividends.
Additionally, in Japan, dividends were up 16.8% on an underlying basis as payout ratios jumped and earnings growth increased. Japanese firms are also under rising pressure form the government and investors to raise dividends from their lows to reflect the greater profits.
Consequently, with underlying dividend yields on the rise across the globe, Crooke advises income investors to take a more global approach.
U.S. investors, though, may still be exposed to currency risks ahead, or a strengthening U.S. dollar and depreciating foreign currencies, which could weigh on overall USD-denominated returns of international investments. Nevertheless, there are a growing number of currency-hedged ETF strategies that help diminish the currency risks.