Income investors love a steady paycheck. The predictability of monthly dividends is a comforting factor that has become a more prominent tactic for many income-oriented ETFs that own U.S. stocks.
This can be a decision-maker for those that want their stock portfolio to produce consistent cash flow rather than the lumpy quarterly payments that most equity funds are known for.
In overseas markets, it is much more difficult to obtain this reliable stream of income. Foreign companies tend to distribute capital to shareholders on a more sparse and unpredictable basis. Semi-annual payments and special dividends are more the norm than the exception in international markets. Even when the company is specifically known to carry a high dividend payout ratio.
For that reason, there are just a small group of select exchange-traded funds that offer the ability for investors to own international stocks and receive that monthly check.
Global X MSCI SuperDividend EAFE ETF (EFAS)
EFAS is part of the Global X Super Dividend series of funds that identifies 50 of the highest dividend paying equities present in the MSCI EAFE Index. It launched in late 2016 and has largely flown under the radar with just $4 million in total assets. The fund has a current 30-day SEC yield of 5.09% and charges a net expense ratio of 0.55%. One of its most distinctive qualities is the distribution frequency of those dividends, which is set to monthly.
EFAS has achieved similar returns to its parent index, the iShares MSCI EAFE ETF (EFA) over the last year with a total return of +14.77%. It’s also notable that the yield of EFAS is more than double that of EFA, which is an attractive feature for those seeking above-average income.
Global X MSCI SuperDividend Emerging Markets ETF (SDEM)
Those that are looking for emerging market dividend stock exposure may opt to consider SDEM in their research. This fund is tightly related to EFAS in that it owns a niche group of 50 high yield emerging market stocks. It’s top country allocations at present include: South Africa, Russia, Brazil, and Taiwan.
SDEM carries a similar 30-day SEC yield of 4.84% and income is paid monthly to shareholders. The fund also charges an expense ratio of 0.66% to implement its investments strategy and is still quite small with $15 million in total assets.
iShares International Preferred Stock ETF (IPFF)
Preferred stocks straddle that no-mans land between equity and debt that is often overlooked when seeking pure common stock exposure. Nevertheless, a fund such as IPFF may be desirable for those looking to further diversify their asset class exposure and return profile in overseas markets.
The fund tracks an index of over 100 preferred securities in non-U.S. developed markets. The majority of the exposure (nearly 80%) is derived from the Canadian financial sector, followed by a smattering of banks in the United Kingdom.
IPFF has a 30-day SEC yield of 3.42% and charges an expense ratio of 0.55%. Its dividend is paid on a monthly basis and has remained quite steady over the last year.
Related: More Investors May Be Looking Into International ETFs
Arrow Dow Jones Global Yield ETF (GYLD)
GYLD is an outlier on this list because it’s not a pure stock-only ETF like the three prior funds. It’s multi-asset style encapsulates equity, debt, and alternative characteristics to create a more diversified pool of global holdings.
This ETF tracks the Dow Jones Global Composite Yield Index, which allows for a 20% representation of high yield stocks, real estate, sovereign debt, corporate debt, and alternative investments. Each category contains 30 equally weighted components for a total holding count of 150.
The underlying positions in GYLD are heavily weighted towards high yield entities in foreign markets. Real estate investment trusts, master limited partnerships, and other esoteric securities combine to produce a current 30-day SEC yield of 8.04%. It also charges an expense ratio of 0.75% to administer the portfolio.
I would classify this type of fund as a tactical or special situation holding in the context of a globally diversified income portfolio. I primarily added it to the list because the universe of international funds sporting monthly dividends is so small and it may be of interest to those who are looking for an unconventional style.
The Bottom Line
It’s no secret that these ETFs target a more concentrated pool of stocks and sport appreciably higher fees than traditional passive international funds. Nevertheless, they may provide the opportunity to overweight a small portion of an income portfolio towards high yield stocks with the added benefit of the monthly income stream.
This article has been republished with permission from FMD Capital.