International Dividend Investments Can Diversify Portfolio

by: David Templeton August 18, 2008 | about stocks: DLS / HFQAX / IDV / PID    

David I. Templeton

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Dividend growth stocks are not only a U.S. company phenomenon. More investors are looking to non-U.S. investments for dividend growth investment opportunities. For a U.S. investor, access to these types of investments can be obtained via ADRs, exchange traded funds and/or mutual funds.

A recent article in The Wall Street Journal highlighted some foreign dividend opportunities. The Journal article noted the yield on the MSCI EAFE Index of 3.7% is higher than the 2.4% yield on the S&P 500 Index. Also highlighted was the fact that foreign firms tend to pay out more of their earnings to shareholders in the form of dividend payments then U.S. companies. Lastly, the Journal indicates:

...there are 22 foreign dividend-oriented exchange-traded funds, mostly launched since 2006. Sixteen of these are from WisdomTree Investments Inc., a company which subscribes to the research of Jeremy Siegel, a professor at the University of Pennsylvania, who believes that dividends are the most objective way to value a company.

The ETFs go from broad ones, such as the PowerShares International Dividend Achievers Porfolio (PID), launched in 2005 and yielding 4.1%, to specialized ones such as the WisdomTree International SmallCap Dividend (DLS), which currently yields 2.6%. These are two of the largest such ETFs, with slightly more than $460 million in assets.

The foreign-focused fund with the highest yield currently is Henderson Global Equity Income (HFQAX), with a 12-month yield of 8.8%, followed by the iShares Dow Jones EPAC Select Dividend ETF (IDV) with an 8.3% yield. The highest-yielding fund may not be suitable for all investors. For instance, the iShares DJ EPAC ETF has 50% of its assets in financials.

As is the case with U.S. dividend growers, many of the international funds are concentrated in the financial sector. An investor should evaluate the appropriateness of these fund investments to insure the sector allocation is in line with the goals and objectives of ones overall investment expectations.

Source:

The Dividends From Far, Far Away
The Wall Street Journal
By: Shefali Anand
August 16, 2008

Related Articles

This article has 7 comments:

  •  
    Aug 18 08:13 AM
    I would also suggest looking at the ClosedEnd Funds which invest globally. I own EOD, BWC, BGY, IAE, BRG, DHG, DGT, LOR AND LGI - together my yield is over 10% - with tremendous diversification. Within my entire CEF portfolio, we collect monthly and quarterly dividends from more than 1000 foreign companies.
    Reply | Link to Comment
  •  
    Aug 18 09:59 AM
    Two things: First, everyone seems to ignore the fact that dividend funds have very different sector weightings than total market funds, typically overweighting financial, energy, and utilities. How much of the performance of such funds is attributable to sector weightings alone? Second, not all companies issue dividends so you are making bets on the subset of companies that do. Arnott's RAFI combines several fundamental measures in addition to dividends and does not exlude as many companies as do funds based on dividend weighting alone. Seems to me - if you believe in fundamental weighting at all - this is a more sophisticated approach.
    Reply | Link to Comment
  •  
    Aug 18 10:24 AM
    L.Bill, RAFI does not come up for me when I plug that symbol to get quotes and info., am I reading that correctly?
    Thanks
    Reply | Link to Comment
  •  
    Aug 18 12:19 PM
    Barnburner- there are several funds and ETFs that are based on the RAFI methodology. PRF offered by Powershares is and ETF for US large cap and there are international stock offerings as well. Schwab offers mutual funds based on the RAFI methodology that have lower expense ratios than the Powershares ETFs. Of late, the international RAFI funds are doing much better than the US funds. Lot of debate about the merits of fundamental weighting (which includes dividend weighting) vs. capitalization weighting. You'll want to research.
    Reply | Link to Comment
  •  
    Aug 18 09:19 PM
    RAFI stands for Research Affiliates Fundamental Index.
    Reply | Link to Comment
  •  
    Aug 18 09:21 PM
    RAFI stands for Research Affiliates Fundamental Index.
    Reply | Link to Comment
  •  
    Aug 18 09:23 PM
    Agree.Foreign funds give high dividends but most of them are heavily weighted in financials. Caution is warranted when picking up such funds.
    Reply | Link to Comment
More Comments on PID »
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by David I. Templeton

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Dividends
Asset Allocation with ETFs
Closed-End Funds
Commodity ETFs