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.

The Vanguard International High Dividend Yield ETF (NasdaqGM: VYMI) helps investors tap a basket of ex-US dividend stocks. An easy way of looking at the Vanguard International High Dividend Yield ETF is that it is the international answer to the wildly popular Vanguard High Dividend Yield ETF (NYSEArca: VYM), one of the largest U.S. dividend ETFs.

VYMI “is a reasonable value strategy that effectively diversifies stock-specific risk. It screens for high-yield stocks and weights holdings by market capitalization, which tilts the portfolio toward large, stable firms. But its track record is short, which limits its Morningstar Analyst Rating to Bronze,” said Morningstar in a recent note.

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.

VYMI’s “selection universe starts with large- and mid-cap stocks that are part of the FTSE All-World ex US Index. The exchange-traded fund’s index ranks large- and mid-cap stocks by their expected dividend yield over the next 12 months and selects those that represent the higher-yielding half by market value,” according to Morningstar. “Stocks that make the cut are weighted by market cap, which emphasizes companies that are large, stable, and less likely to be in financial distress. This increases the likelihood of holding stocks that can maintain or grow their dividend payments in the future.”

VYMI holds just over 880 stocks, 19% of which are from emerging markets. Europe accounts for just over 54% of the ETF’s weight. Over 40 countries are represented in the ETF with the U.K. and Switzerland combining for 26.1% of VYMI’s geographic exposure.

“Alternatively, high yields can stem from stocks with poor prospects and depressed prices,” said Morningstar. “But this fund’s broad diversification can help mitigate these stock-specific risks as it is one of the best diversified in the foreign large-value Morningstar Category. Additionally, the emphasis on large mature firms reduces the fund’s allocation to those likely to be in severe distress.”

For more on smart beta ETFs, visit our Smart Beta Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.