Ex-U.S. developed market dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services and telecommunications.
Low interest rates in the U.S. have sent investors flocking to dividend stocks and exchange traded funds in recent years. With central banks throughout the developed world paring rates and engaging in monetary easing, government bond yields are falling, giving investors good reason to consider international dividend ETFs.
An option to consider among international dividend ETFs is the iShares International Select Dividend ETF (NYSEArca: IDV). IDV requires that components be taken from developed countries in Europe, Pacific, Asia and Canada. Securities must also meet dividend payout consistency and growth metrics, along with profitability and minimum liquidity levels. Holdings are then weighted by dividend yield.
“In my view there are two main reasons why foreign dividend stocks did not attract the same interest as their US rivals. First, foreign investors tend to rely a lot more on government and corporate pensions. On the opposite hand, US investors depend a lot more on their investment portfolios as a supplemental or often primary retirement income, which naturally drives demand for dividend stocks,” according to a Seeking Alpha analysis of international dividend ETFs.
Established rivals to IDV include the PowerShares International Dividend Achievers Portfolio (NYSEArca: PID) and SPDR S&P International Dividend ETF (NYSEArca: DWX). Additionally, rival options include the FlexShares International Quality Dividend Index Fund (NYSEArca: IQDF), Market Vectors MSCI International Quality Dividend ETF (NYSEArca: QDXU) and ProShares MSCI EAFE Dividend Growers ETF (NYSEArca: EFAD).
PID only includes companies that have continually increased dividends, and holdings are weighted by dividend yields. The combination of listing requirements and dividend growth means that the majority of components are from developed countries, like the U.K. and Canada.
DWX follows its own liquidity, profitability and dividend growth criteria. The index also weights components by dividend yield. Unlike the previous two offerings, DWX also includes emerging markets.
IDV “is overweight on Financial Services, Utilities, Energy and Communications services, which are the sectors that traditionally have a higher dividend payout. Despite the lack of constraints, IDV has a respectable sector exposure with only two of them being significantly underweight – Real Estate and technology. This is explained by the fact that the foreign real estate companies have not reached the maturity level of the US large cap REITs,” notes Seeking Alpha.
For more information on ETFs, visit our ETF 101 category.