The U.S. is usually viewed as a meccas for dividend growth, but some exchange traded funds provide exposure to ex-US dividend growth stocks and the ETF wrapper could be one of the more efficient ways for investors to tap foreign dividend payers.
The ProShares MSCI EAFE Dividend Growers ETF (CBOE: EFAD) is an ideal avenue for investors looking for ex-US developed markets dividend growth stocks. EFAD tracks the MSCI EAFE Dividend Masters Index, which includes members of the MSCI EAFE Index that have dividend increase streaks of at least 10 consecutive years.
“Foreign stocks might look enticing to income-oriented investors,” said Morningstar in a recent note. “As of this writing, foreign-stock mutual funds and exchange-traded funds offer higher yields than U.S.-stock funds.”
EFAD 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 EFAD over a traditional, broad developed markets ETF.
EFAD ETF Advantages
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 many foreign dividend companies. While many of those companies pay dividends just once or twice a year, EFAD 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 pay out only once per year. Furthermore, these payments are seasonal.”
EFAD lives up to the promise of higher yields outside with a a dividend yield of 2.05%, above what the S&P 500 pays out, but that is low enough to imply that EFAD components have ample room for dividend growth going forward.
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