Investors looking for value stocks don’t have to confine their searches to U.S. equities. Plenty of ex-US developed markets offer value. Lots of it and these markets, in many cases, traded at notable discounts to the major domestic equity benchmarks.
Investors can also gain compensation in the form of dividends for their ex-US value hunts. The ProShares MSCI EAFE Dividend Growers ETF (CBOE: EFAD) is one way of accomplishing that objective. 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 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.
“Dividends should be part of the international investment thesis, particularly with developed market funds because many of those ex-U.S. regions feature higher yields than domestic equity benchmarks,” according to InvestorPlace. “Additionally, some developed markets including the United Kingdom and Switzerland, have rich histories of dividend growth.”
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.
“The emphasis on dividend growth over yield gives this international ETF a quality feel. It also steers investors away from high-yield stocks that could be at risk of cutting their payouts in the future. EFAD’s current yield of 2% implies ample runway for dividend growth,” reports InvestorPlace.
One issue for investors to consider is the unusual payment schedules for 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.
“The U.K. and Japan combine for over 41% of this international ETF’s geographic weight. In the case of Japan, that’s a low-yielding market that’s home to dozens of cash-rich companies where dividend growth has only recently become a priority. This indicates the world’s third-largest economy could be a significant driver of payout growth for EFAD going forward,” according to InvestorPlace.
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.