International Dividend ETF Can Benefit from Ex-US Dividend Rebuild

The U.S. isn’t the only market that’s stressing dividend investors this year. The U.K. and other developed markets are home to rampant dividend cutting and suspensions this year. However, the ALPS International Sector Dividend Dogs ETF (NYSEArca: IDOG) remains a compelling option for investors looking for international diversification and income.

An advantage of IDOG is that it’s underweight the U.K., a severe dividend offender, compared to other international dividends ETFs.

U.K. “payouts this year could shrink by nearly half to 56.7 billion pounds ($71 billion) in the worst-case scenario, according to a report from financial data firm Link Group. While a rebound is expected next year, it could conceivably take until 2026 for dividends to reach the level seen in 2019,” reports Bloomberg.

IDOG allocates 17.49% of its weight to the U.K., more than 600 basis points below the allocation to that region found in the widely followed Dow Jones EPAC Select Dividend Index.

Other IDOG Perks

“One potential positive from the carnage of the second quarter is that many companies have taken the opportunity to reset their dividends at a lower, most sustainable level from which they can start to rebuild. U.K. equities are expected to yield 3.3% in the worst-case scenario over the next 12 months,” according to Bloomberg.

Obviously, IDOG is levered to the trend of rebounding U.K. dividends, should that scenario materialize, but the fund has other perks. For example, IDOG devotes over 17% of its weight to Japanese stocks and Japan is one developed market with obvious dividend growth potential.

“Japanese companies have long been criticized for hoarding too much cash. Now the habit is being touted as a reason to buy Japan stocks, as the coronavirus pandemic dims the outlook for dividend returns elsewhere,” reports Bloomberg.

In terms of Japan exposure, IDOG stands out. For example, the aforementioned Dow Jones EPAC Select Dividend Index allocates barely more than 3% of its weight to Japan. Overall, IDOG features exposure to 14 markets.

Other international developed market dividend ETFs include the FlexShares International Quality Dividend Dynamic Index Fund (NYSEArca: IQDY), ProShares MSCI EAFE Dividend Growers ETF (CBOE: EFAD) and the SPDR S&P International Dividend ETF (NYSEArca: DWX).

For more on cornerstone strategies, visit our ETF Building Blocks 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.