Experienced dividend investors know the utility of adding some international holdings to their income portfolios, whether by way of individual stocks or exchange traded funds (ETFs).
The explanation is straight forward: 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.
The iShares International Select Dividend ETF (NYSEArca: IDV) is one of the more venerable names among international dividend ETFs. IDV, which is nearly 10 years old, requires that components be taken from developed countries in Europe, Pacific, Asia and Canada. Securities must also meet dividend payout consistency and growth metrics, along with profitability and minimum liquidity levels. Holdings are then weighted by dividend yield.
“It’s a sound investing strategy that has produced just one hiccup. Investors that got into the fund on day one would have enjoyed a return of next to nothing! There’s no doubt that the overseas markets haven’t enjoyed nearly the run that the U.S. market has, but that 0% return (0.6% average annual return if you want to be exact) can partially be attributed to timing too,” according to ETF Daily News.
The $4 billion IDV tracks the Dow Jones EPAC Select Dividend Index and holds nearly 100 stocks. IDV has a trailing 12-month yield of 4.3%, well above what investors will find on major U.S. equity indexes or 10-year Treasuries.
Just under 20 countries are represented in IDV’s lineup, but the bulk of the ETF’s geographic weight is allocated to the U.K., France and Australia. Those countries combine for half IDV’s geographic lineup.
“While the international markets still have to work through a fair number of issues (Brexit, potential government bankruptcies, etc.), there are signs of optimism. The Eurozone especially is looking stronger. Manufacturing expanded at the fastest pace in over five years. The retail sales reading for April jumped all the way up to 52.7, while GDP grew at a 1.7% year-over-year rate. The Chinese PMI number dipped to 51.2 in April but is still near multi-year highs, while Japanese PMI has shown seven consecutive months of expansion,” according to ETF Daily News.
IDV’s P/E ratio of just over 14 implies a substantial discount to U.S. stocks.
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