Adding Dividends to a Developed Markets ETF

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.