International dividend stocks and the related ETFs can play pivotal roles in income-generating portfolios, but how investors access ex-US dividends is an important part of the equation. The FlexShares International Quality Dividend Index Fund (NYSEArca: IQDF) takes a quality approach to ex-US payouts.
IQDF screens for management efficiency, profitability and cash flow. Each company has to show management efficiency or firms that efficiently deploy capital and make smart financing decisions. Companies with wider profit margins are better positions to grow and maintain dividends than those with slimmer margins. Additionally, firms that can meet debt obligations and day-to-day liquidity needs are better capable of maintaining dividends.
Although it’s a quality play, IQDF has a trailing 12-month yield of 4.49%, well above the yields on U.S. government bonds and equity benchmarks as well as some international indexes.
“Just consider the recent dividend yields of several international stock indexes compared with the S&P 500’s 1.8%. The DAX in Germany was at 2.9%, and the FTSE 100, which tracks companies in the United Kingdom, yielded 4.6%,” reports Lawrence Strauss for Barron’s. “The Topix in Japan, where yields have been on the rise as companies allocate more capital to dividends and buybacks, was at 2.3%.”
Illuminating International Benefits
Low-interest rates in the U.S. have sent investors flocking to dividend stocks and ETFs in recent years. With central banks throughout the developed world paring rates and engaging in monetary easing, government bond yields are falling, giving investors good reason to consider international dividend ETFs.
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.
However, IQDF is not overly reliant on high-yield sectors. Rather, the fund features strong exposure to international dividend growth opportunities in the financial services, consumer discretionary and technology sectors. Those groups combine for over 40% of the fund’s roster.
The fund devotes over a third of its geographic exposure to the U.K., Japan, and Taiwan – three of the steadiest dividend growth markets outside the U.S.
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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.