What are International Dividend Yield ETFs
Since dividend investing offers investors a steady stream of predictable earnings over time, it has grown prevalent over the past few decades. Dividends are a particularly effective tool for older investors seeking a steady income to derive profit from their portfolio while maintaining equity for capital growth. Similarly, many companies offer dividend-paying stocks to entice long-term investors rather than day traders to buy their stock.
Investors now have access to a brand-new asset class called international dividend yield ETFs. These ETFs follow benchmarks of multinational companies that distribute substantial dividends to investors worldwide.
According to Vanguard analysis from 2014, non-U.S. stocks made up 51% of all global equities. According to the study, the MSCI world index, which combines emerging and developed economies, had the lowest volatility between 1989 and 2013.
Recently, various international dividend yield ETFs have emerged in the market. For instance, SPDR S&'P International Dividend Fund (DWX) boasts annual expenses of 0.45% and yields that reach 5%. While iShares International Select Dividend Yield has yields of 6% and a 0.50 percent expense ratio.
IDV is AUM's largest international dividend yield ETF, with $3.7 billion in assets. On the other hand, DWX, with $1.1 billion in assets under management (AUM), is its next closest competitor.
IDV currently pays a dividend of 4.5 percent and levies a management fee of 0.5 percent. DWX levies a 0.45% fee and yields a 5% dividend.
Other International dividend yield ETFs include FGD, or First Trust Dow Jones Global Select Dividend Fund, and Global X SuperDividend (SDIV). Additionally, Vanguard has introduced two ETFs focusing on foreign stocks with dividend payouts. The NASDAQ International Dividend Achievers Select Index and the FTSE All-World ex U.S. High Dividend Yield Index are both tracked by the Vanguard International Dividend Appreciation Index Fund ETF (VIGI) and the Vanguard International High Dividend Yield Index Fund (VYMI), respectively.
SPDR S&'P International Dividend Yield ETF (DWX)
State Street Global Advisors (SSGA) introduced the SPDR S&'P International Dividend ETF (DWX) in 2008. As of June 2020, the fund had $594.89 million in AUM. This ETF follows the S&'P International Dividend Opportunities Index, which comprises the top 100 dividend-paying stocks from non-American corporations that adhere to minimal viability and financial stability requirements.
The two countries with the larger representation are Canada and Japan, which account for 18.9% and 11.1% of the portfolio's assets. Over half of the fund's assets are represented by equities from the financial, utility, and real estate sectors.
The SPDR S&'P International Dividend ETF has a dividend yield of 4.19%, and an expense ratio is 0.45%.
iShares International Select Dividend ETF (IDV)
BlackRock launched the far-reaching iShares International Select Dividend ETF (IDV). With $3.3 billion in total assets, this ETF ranks in the top 10 most popular foreign large-cap stock ETFs. The Dow Jones EPAC Select Dividend Index, which consists of 100 high-dividend yield equities listed largely on exchanges in non-U.S. developed economies, is tracked by this fund. The iShares International Select Dividend ETF has an expense ratio of 0.49% and pays a dividend yield of 6.1%.
The U.K. accounts for 23.7% of the portfolio's assets, with Australia for 16% and Italy for 9%. The top holdings of the fund are Azimut Holding (AZM), Commonwealth Bank of Australia (CBA), and British America Tobacco (BATS).
What to Consider When Evaluating International Dividend Yield ETFs
As per Morningstar Research, three factors may influence these ETFs' performance.
Country Allocation
Allocation by country comes first. The fund's risk can change if it focuses more on nations where corporations have a track record of paying out large dividends. Australian firms typically have large weightings since they frequently pay out substantial dividends. As a result, the fund's performance is greatly influenced by the degree of its economic exposure. Japanese companies also pay minimal dividends and make up a small portion of their funds.
Currency Exchange Rates
The currency exchange rate is the second issue to consider when evaluating international dividend yield ETFs. Investors must convert dividend payouts from local currencies to U.S. dollars to calculate returns. In the abovementioned example, the Australian dollar is recently decreasing relative to a growing dollar. This has impacted ETF returns that record indexes substantially invested in the region. Because Japanese dividend-paying equities rose between 2013 and 2015, underweighting (a fund with little exposure to industry) in Japan has affected iShares Select Dividend ETF, according to Morningstar analysis.
Tax Implications
The third issue to consider is the tax deductions of international dividend yields. ETFs must pay out capital gains taxes in the nations where these ETFs are invested. Investors typically receive international tax incentives for their profits. They may not have to pay tax in particular circumstances if the ETF is a Tax-Advantaged fund.
Bottom Line
Investors seeking exposure to foreign sectors participate in these sectors through international dividend yield ETFs. Before investing in international dividend yield ETF funds, investors should consider three factors: currency exposure, tax implications, and country allocation.
