With many market observers forecasting 2020 upside for ex-US developed market equities, investors may want to revisit the asset class and do so in less volatile fashion by accessing dividend-based strategies such as the FlexShares International Quality Dividend Dynamic Index Fund (NYSEArca: IQDY).
IQDY is part of a broader suite of FlexShares domestic and international dividend ETFs that emphasize quality as a means of lowering volatility and sourcing steady dividend growth.
The ETFs specifically screen 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.
Up more than 22% year-to-date, IQDY features some of the perks investors have come to expect with international dividend ETFs, including higher yields. The FlexShares fund has a tantalizing dividend yield of 4.48%.
Larger Ex-U.S. Yields
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.
IQDY’s screening process evaluates dividend-paying stocks across a number of various factors and ranks those on a sector basis and compares firms on both a regional and sector basis. In this way, the screen compares like firms against one another and also serves to pick out those in every country and sector that support diversification through the construction process.
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.
IQDY allocates over 41% of its weight to value stocks and its geographic exposure confirms its value leanings. For example, Japan and the U.K., two markets trading at noticeable discounts to the U.S., combine for 28% of IQDY’s weight.
The fund also features emerging markets exposure in the form of a combined 20% weight to China, Taiwan, and Russia, three of the largest dividend payers among developing economies.
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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.