Investors may be excited by yesterday’s Fed meeting and market upswing, but this year’s volatility is far from over. That merits a look at current income in the form of dividends, which exploded in popularity at the turn of the year and are still popular, with the third-highest inflows over the last three months for dividend ETFs, according to VettaFi. Investors who find the space appealing may want to watch quality international dividends in the WisdomTree International Quality Dividend Growth Fund (IQDG).
One particular reason investors may want to look to dividends could be avoiding a potential recession, still possibly in the cards for later this year. Dividends tend to be much less volatile than stocks in a recession, with current income buoying portfolios and lowering beta in times when share prices are flying up and down.
With U.S. markets still perhaps overvalued and with some way to go before really seeing the drop-offs that might come due to the Fed’s rate hikes, international markets may also become more appealing by comparison. Many foreign economies have already done the hard work of managing inflation with rate hikes, and when adding a quality dividend screen to international firms, there may be some interesting options available.
That presents an opportunity for an ETF like the quality international dividends ETF IQDG. IQDG charges 42 basis points to track the WisdomTree International Quality Dividend Growth Index, which offers an alternative look on total market stocks by adding dividend flavor. Targeting firms outside the U.S., the strategy ranks stocks by quality and long-term growth, with earnings yield required to exceed dividend yields.
IQDG identifies the top 300 names and weights them according to the total of their annual cash dividend payouts, capped at 5% for each. No nation or sector receives a weight greater than 20%, as well. IQDG has outperformed its ETF Database category average and its FactSet segment average to start the year, returning 9.8% over one month compared to 9 % and 7.5%, respectively. It has also added $26 million in net inflows over the last five days.
Dividends have started the year well and merit a place on investors’ shortlists. As such, an international look offered by a strategy like IQDG may be a strategy to watch in the weeks ahead, buoying portfolios if the U.S. market dips in 2023.
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