Dividend growth in international markets is expected to be impressive this year, a theme that could benefit an array of exchange traded funds, including the Vanguard International High Dividend Yield ETF (NasdaqGM: VYMI).

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.

“The fund’s selection universe includes large- and mid-cap stocks in the FTSE All-World ex-US Index. It ranks potential holdings by their expected dividend yield over the next 12 months and selects those that represent the higher-yielding half by market value,” said Morningstar in a recent note.

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.

High-yield Dividend Stock Risks

As is the case with many dividend ETFs, particularly those with some emphasis on yield, VYMI has a value tilt. However, there are some risks that come along with high-yield dividend stocks.

“Stocks with high yields may pay out a high percentage of their earnings as dividends, which reduces the fraction that can be reinvested to grow their businesses,” according to Morningstar. “Alternatively, high yields can stem from stocks with poor prospects and depressed prices. The fund’s broad diversification can offset some of these stock-specific risks as it is one of the best diversified in the foreign large-value Morningstar Category. However, it should continue to be more volatile than the FTSE All-World ex US Index.”

Investors should also note VYMI is not a dedicated developed markets fund as it allocates over 20% of its weight to emerging markets dividend stocks.

“Historical performance is difficult to evaluate because the fund’s track record is short. Over its life, its total and risk-adjusted returns have landed just inside the top third of the category. Vanguard charges 0.32% annually for this fund, which should give it a sustainable advantage over its more expensive competitors,” according to Morningstar.

The research firm has a Bronze rating on VYMI.

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