The new year is still young, but geopolitical drama is emerging. While those trends can be of the short-term variety, investors considering international equities may want to do so with the protection and volatility-reducing capabilities of dividend growth stocks.
Enter the ProShares MSCI EAFE Dividend Growers ETF (CBOE: EFAD). 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.
EFAD is home to 87 stocks, all from developed economies, and the ETF has no exposure to the energy sector, a group that can be volatile when tensions in the Middle East flare, as is currently the case.
Entering An EFAD Evaluation
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.
“With higher dividend yields than U.S. stocks, foreign shares are a good source of income,” reports Andrew Bary for Barron’s. “Ample yields reflect the outperformance of U.S. equities in the past decade and the emphasis overseas on dividends, rather than on stock buybacks. If the dollar weakens and international markets finally best the S&P 500 index, the sector could be a big winner.”
At almost 19% of EFAD’s roster, Japan provides meaningful dividend growth exposure with more to come as cash-rich companies there continue elevating buybacks and payouts.
Home to scores of cash-rich companies and with a dividend yield that is lower than other major developed markets, Japan has the room to be a major driver of developed markets dividend growth in the coming years.
Faced with intense market uncertainty fueled by trade wars, political discourse, earnings pressures and more, advisors are looking for quality investments—strategies such as dividend growth —that have a demonstrated history of weathering periods of market volatility.
EFAD allocates over half its weight to industrial, healthcare and consumer discretionary names, indicating the fund does an admirable job of mixing cyclical and defensive sectors.
For more on core investing strategies, visit our Core ETF 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.