There's Still a Case for International Dividend ETFs | ETF Trends

Investors focusing on domestic dividend stocks are enduring some rough times this and May was no exception to that trend as another sizable batch of S&P 500 companies cut or suspended payouts. D

Due in large part to the coronavirus pandemic, ex-US dividends are being pinched, too, but the ALPS International Sector Dividend Dogs ETF (NYSEArca: IDOG) is an idea that still has plenty of merit for income investors.

With IDOG, ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November. From there, IDOG is rebalanced quarterly in an effort to keep sector weights in the area of 10% and individual holdings at around 2%.

Investigating IDOG

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, but IDOG pays quarterly dividends, as is the case with many U.S. dividend stocks.

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.

Although IDOG’s holdings are not particularly high yielding, the ETF’s underlying index yield is noticeably higher than the MSCI EAFE Index. IDOG yields 5.25%, which is well above the comparable metric on the MSCI EAFE Index.

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.

“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.”

IDOG 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 IDOG over a traditional, broad developed markets ETF.

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).

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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.