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.
An idea to consider among international developed markets dividend ETFs while mitigating currency risk is the Deutsche X-trackers MSCI EAFE High Dividend Yield Hedged Equity ETF (NYSEArca: HDEF). HDEF, which is almost two years old, tracks high dividend-yielding developed market stocks across Europe, Australasia and the Far East, and it hedges the currency risks as well.
Low interest rates in the U.S. have sent investors flocking to dividend stocks and exchange traded funds 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.
“In today’s low-yielding interest rate environment, investors searching for additional sources of income may consider a high-dividend yield approach. High-dividend yielding strategies seek exposure to companies with higher-than-average dividend yields relative to their market-cap-weighted counterparts with the goal of capital preservation and potential long-term capital appreciation,” according to Deutsche Asset Management.
HDEF holds 111 stocks and follows the MSCI EAFE High Dividend Yield US Dollar Hedged Index, meaning the ETF can be used as a complement or alternative to traditional MSCI EAFE strategies.
HDEF and its emerging markets counterpart, the Deutsche X-trackers MSCI Emerging Markets High Dividend Yield Hedged Equity ETF (NYSEArca: HDEE) track high-dividend-yield indices select companies with dividend yields greater than or equal to 1.3 times the yield of the parent index and screen for quality, including return on equity, earnings variability and debt-to-equity. Additionally, the new funds also utilize forward currency contracts to diminish the negative effects of an appreciating U.S. dollar or weakening foreign currencies over the short-term.
Yield-seeking investors who are turning toward international markets may want to consider a currency-hedged strategy to limit the negative effects of weakening foreign currencies or a strengthening U.S. dollar on their investment. If a foreign currency weakens, a non-hedged foreign equity position would have a lower U.S. dollar-denominated return.
The U.K. And Germany combine for over 47% of HDEF’s weight. France and Australia combine for another 23%. Financial services and consumer discretionary stocks combine for over 40% of the ETF’s sector weight.
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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.