Across bonds and equities, yields are low in the U.S., a scenario increasing the allure of international dividend stocks, which are accessible via the Vanguard International High Dividend Yield ETF (NasdaqGM: VYMI).
An easy way of looking at the Vanguard International High Dividend Yield ETF is that it is the international answer to the wildly popular Vanguard High Dividend Yield ETF (NYSEArca: VYM), one of the largest U.S. dividend ETFs.
“Vanguard International High Dividend Yield Index ETF (VYMI) strikes a balance between dividend yield and risk. It offers a higher yield than the MSCI ACWI Ex USA Value Index and leans toward stable firms that are likely to continue making dividend payments,” said Morningstar analyst Daniel Sotiroff in a recent note.
The research firm upgraded VYMI to Gold from Bronze. Investors should also note VYMI is not a dedicated developed markets fund as it allocates over 20% of its weight to emerging markets 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.
There are risks associated with high dividend strategies and VYMI features a value tilt as a result of its high dividend focus, but the Vanguard fund has avenues for damping some of those risks.
“This strategy tries to control its exposure to risky stocks,” notes Sotiroff. “Sweeping half of the dividend-paying universe into its portfolio diversifies stock-specific risks, which limits the influence of distressed firms. It also weights constituents by their market capitalization–an approach that emphasizes large, stable firms that should have the capacity to continue making dividend payments.”
By focusing on profitable companies that can sustain and grow dividends, VYMI is topping some broader international benchmarks.
“Leaning toward large, profitable firms has aided the fund’s performance. It beat the MSCI ACWI Ex-USA Value Index by 46 basis points annually from its launch in February 2016 through August 2020, while its volatility was comparable,” according to Morningstar.
VYMI, which tracks the FTSE All-World ex-US High Dividend Yield Index, charges 0.27% per year, or $27 on a $10,000. That puts it toward the lower end of annual fees in the international dividend fund category.
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