Income-minded investors shouldn’t be fixated on U.S. markets alone as there are a number of quality dividend generating ETFs that may offer more attractive valuations and opportunities too.
For instance, FlexShares’ line of quality dividend international ETFs, like the FlexShares International Quality Dividend Index Fund (NYSEArca: IQDF), FlexShares International Quality Dividend Defensive Index Fund (NYSEArca: IQDE) and FlexShares International Quality Dividend Dynamic Index Fund (NYSEArca: IQDY), incorporate various screens to select quality dividend payers from international markets. IQDF shows a 3.58% 12-month yield, IQDE has a 3.62% 12-month yield and IQDY comes with a 3.04% 12-month yield.
The current market environment reflects global growth, with the world’s major economies expanding in sync with all 45 countries tracked by the Organization of Economic Cooperation and Development set to grow this year. As many look to diversify and capture the rising earnings growth in international markets, dividend investors can also focus on the opportunity through a quality lens.
“We believe, however, even in the face of this earnings growth that investors in international dividend stocks must be confident that the dividend being paid is sustainable over the long term, meaning that the payout is well covered and the payer company has the potential to grow it over time. Measuring a company’s core financial health makes it possible to evaluate the likelihood of future dividends increasing or decreasing,” according to a FlexShares note.
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The quality dividend 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.
“By using several lenses to evaluate the actual financial health of the organization, the FlexShares’ Dividend Quality Score (DQS) is designed to provide insight into how well positioned a dividend-paying company is for success, and the expectations for future dividends under the current market/economic environments,” according to FlexSahres.
The DQS screening process evaluates dividend paying stocks across a number 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.
For more information on the global markets, visit our global ETFs category.