Dividends have picked up a lot of steam towards the end of 2022, and rightly so, offering current income to buoy investors’ portfolios ahead of an uncertain new year. With the domestic U.S. market facing the risk of a rising rate-instigated recession next year, it could be a good moment to revisit ex-U.S. equities, available in a foreign dividend equities ETF like the Franklin International Core Dividend Tilt Index ETF (DIVI).
Dividends could see another solid year in 2023 by avoiding some of the bigger tech or internet firms in place of large firms in some more mature industries like utilities, consumer staples, energy, and healthcare — all areas that may remain more durable going forward. With dividend-paying stocks having notably outperformed the broader market in the 1970s, they could do so again with inflation unlikely to leave us quickly in the next few months.
That could be a helpful lean for looking at foreign equities. Emerging markets faced a lot of headwinds in 2022, but markets could be approaching a turning point with the possibility of a weaker dollar from tightening policy and slowing U.S. growth allowing for some stability in undervalued EM currencies. Further, according to Franklin Templeton’s 2023 outlook, some of the worst negative sentiment in places like China and Europe may have been overshot and already well settled into valuations.
DIVI actively invests with a dividend yield tilt to its parent index, the Morningstar Developed Markets ex-North America Target Market Exposure Index. The foreign dividend equities ETF includes large- and mid-cap stocks, applying optimization to the trailing 12-month dividend yields of the eligible securities.
The ETF charges just nine basis points for its exposures and has added $40 million in one-month net inflows, a notable spike compared to its $66.6 million net inflows over one year. Further, it has outperformed both its ETF Database category average and its Factset segment average on a YTD basis, and outperformed the former metric 12.6% to 2.3% over three months. It offers a 3.4% annual dividend yield.
There are a variety of dividend strategies out there available for investors, but the tilt available in DIVI adds a notable flavor for a foreign equities slice. For investors on the lookout for the right dividend play for 2023, DIVI may be one to watch in the weeks to come.
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