Home country bias is a factor that more investors should be aware of, and with that in mind, it’s relevant to the 2022 equity income discussion.
As many dividend investors are aware, with nearly eight months of 2022 in the books, the domestic dividend outlook is bright with S&P 500 payouts poised to hit another all-time high. With that, it’s easy to lose sight of the fact that dividends are trending higher in other developed markets. Fortunately, some exchange traded funds make it easy to access steady ex-U.S. dividends. That group includes the Franklin International Low Volatility High Dividend Index ETF (CBOE:LVHI).
Home to nearly $130 million in assets under management, LVHI follows the QS International Low Volatility High Dividend Hedged Index. Various economic data points confirm the relevance of LVHI in the current environment.
“Inflation and global recession fears are behind the trend. With the US and Eurozone inflation forecast between 7.5 to 8% for 2022, dividend stocks provide much needed yield to protect against asset erosion. While the S&P Global Markit Intelligence Economics team forecast global GDP to grow 2.7% in 2022 and 2.6% in 2023, some markets, specifically Western Europe, are headed toward a contraction. Dividend paying companies have defensive characteristics that are well suited for recession, supply chain resilience and rising interest rates,” according to IHS Markit.
Fortunately, there is vibrancy this year in European dividends, and LVHI is levered to that theme with the U.K., Switzerland, France, and Germany combining for about 40% of the exchange traded fund’s geographic exposure. Nine other European nations are also represented in the fund at weights ranging from 0.06% to 4.78%.
Speaking of geography, among international dividend ETFs, LVHI has the right mix at the right time by some metrics.
“The highest dividend yield firms outperformed non-dividend payers by notable spreads in the US Total Cap (39.6 percentage points), Developed Europe (29.7 percentage points) and Developed Pacific (26.9 percentage points) universes over the past year. Taking advantage of this dividend yield strategy, which also outpaced its earnings estimate-based value cohort in 2022 in each region, we construct a dividend forecast/short sentiment multi-factor model which demonstrated robust performance since the beginning of 2021, with average decile spreads of 4.42%, 2.66% and 2.55%, respectively,” added IHS Markit.
Among developed Asia-Pacific markets with impressive dividend growth trajectories this year, Japan, Australia, and Singapore are part of that conversation. Those three countries combine for roughly 30% of LVHI’s roster.
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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.