Top International Dividend ETFs for your portfolio – 2017

Top International Dividend ETFs

Diversification remains the only free lunch that comes with investing – Modern Portfolio Theory.

According to this theory – one that remains embraced by most financial academics – we can enhance portfolio returns while suppressing volatility through diversification.  Diversification then, via different asset classes (bonds, stocks), via different economic sectors (banking sector, utilities sector), and via different countries other than your own can be a very good thing to manage risk.

To help you with diversification, I recently shared these top dividend Exchange Traded Funds (ETFs) to consider for your portfolio:

These funds above are by no means recommendations for your portfolio (your mileage may vary) but I personally consider these solid picks for investors who want the ETF hat-trick:  diversification, steady income, for a modest to low-fee.

Today’s post will look at some of my favourite international dividend ETFs for your portfolio and why I like them.  In researching for this article, I found international dividend ETFs to be a rare breed.  Meaning, you’ll find far more international ETFs to choose from that focus on capital appreciation over delivering modest distributions.  Keep that in mind if you’re focused on income from your portfolio; if you’re searching for more yield, you might want to stick with the Canadian and U.S. ETFs I provided above and simply go with the broadest and lowest-cost possible option for international assets.  I’ll list a few of those ETFs at the end of this post anyhow.

CYH – iShares Global Monthly Dividend Index ETF (CDN–hedged)

This ETF gives you exposure to about 300 hand-picked dividend paying companies from around the world based on company size, dividend history and modest payout ratios.  I like this dividend ETF for its country allocation outside the U.S., although U.S. stocks comprise 50% of the fund.  The downside is this is a Canadian-hedged product.  Canadian-hedged products tend to be more costly than their non-hedged cousins over time.  This is because currency hedging is largely an imprecise science experiment and such experiments lead to higher costs over time.  A reminder about an article on this subject – First Asset Management did a fine job discussing this issue and you can check out that article here.

That said, investors who want to avoid the complexities associated with buying foreign stocks or ETFs in other currencies may want to absorb the small costs.

As of April 2017:

  • MER = 0.66%
  • Distribution yield = ~ 3.5%
  • Monthly payout.

IDV – iShares International Select Dividend ETF

This U.S.–listed ETF gives you exposure to almost 100 international companies that have a history of paying dividends, mostly from developed markets and ex-U.S.  Dividend paying stocks from Australia, UK, Canada, and France comprise over 50% of the fund’s holdings.  The yield is typically over 4% and the management fee is modest.  I think for the modest fee, ex-US assets, and solid yield this is one of the best.

As of April 2017:

  • MER = 0.50%
  • Distribution yield = ~4%
  • Quarterly payout.

DWX – State Street S&P International Dividend ETF

This U.S.–listed ETF gives you exposure to currently 120 international companies that seek to match the returns of the S&P International Dividend Opportunities Index.  It takes a balanced approach to various industry sectors:  financials (~19%), real estate (~16%), utilities (~16%), and less for others. High yield is a big draw.

As of April 2017:

  • Fee = 0.45%
  • Distribution yield over 5%
  • Quarterly payout.

WDIV – State Street S&P Global Dividend ETF

This is another State Street product, a U.S.–listed ETF gives you exposure to about 100 international companies that seek to match the returns of the S&P Global Dividend Aristocrats Index.  Unlike DWX, WDIV invests in close to 20% U.S. stocks; the rest from UK and Canada to comprise about 50% of the fund’s holdings.  This makes this ETF potentially redundant with any existing U.S. dividend ETF or Canadian dividend ETF, depending upon your plan, objectives and existing assets.

As of April 2017:

  • Fee = 0.40%
  • Distribution yield = ~4%
  • Quarterly payout.

PID – PowerShares International Dividend Achievers ETF

This product is based on the NASDAQ International Dividend Achievers™ Index (Index). This fund will “normally invest at least 90% of its total assets in dividend-paying common stocks and other securities that comprise the Index.”  “The Index is designed to identify an international group of American Depository Receipts, Global Depositary Receipts and non-U.S. common or ordinary stocks that have qualified as International Dividend Achievers™”; companies have increased their aggregate annual regular cash dividend payments consistently for at least each of the last five consecutive years.”  Be mindful of the fees and the number of holdings.  This one is a bit pricey than others and less diversified.

As of April 2017:

  • MER = 0.40% (total fee = 0.58%)
  • Distribution yield = ~3.75%
  • Quarterly payout.

VYMI – Vanguard International High Dividend Yield ETF

A great product for steady international income.  This fund is a great way to get exposure to international stocks that are forecasted to have above-average dividend yields. Hard to go wrong internationally with over 900 income-oriented stocks.  This is a newer product from Vanguard, likely to rival IDV in the years to come, for assets under management.

As of April 2017:

  • MER = 0.32%
  • Distribution yield = ~2.6%
  • Quarterly payout.

ZDI – BMO’s International Dividend ETF

One of the top Canadian-listed international dividend ETFs.  Modest MER, 102 assets and holdings largely ex-US (most geographical holdings from UK, Australia, France and Spain). Monthly distribution is good and distribution yield is over 4%.  I think this is a good candidate to complement ZDV (Canada Dividend ETF) and ZDY (U.S. Dividend ETF) for income hungry investors who seek solid distributions from their capital.

As of April 2017:

  • MER = 0.44%
  • Distribution yield = ~4.2%
  • Monthly payout.

Favourite low-cost international ETFs

As promised good reader, here is a list of my favourite international ETFs:

VWO – Vanguard FTSE Emerging Markets ETF

This U.S.-listed ETF invests in stocks of companies located in emerging markets around the world, such as China, Brazil, and South Africa.  There is a high potential for returns with this product but remember with high potential returns comes high risk.

VEE – Vanguard Canada’s FTSE Emerging Markets Index ETF

You don’t need a U.S.-dollar RRSP for this product since this is the Canadian version of VWO.   Again, you’ll pay more in fees to own VEE over VWO but it may be worth it.  With VEE you’ll see the 15% withholding taxes are applied in the RRSP and TFSA and more withholding taxes levied by the international countries where those emerging companies are considered “domiciled”.

VXUS – Vanguard Total International Stock ETF

This product gives investors broad exposure to major stock markets around the world, ex-United States.  It’s very cheap and highly diversified.  Win-Win.

VXC – Vanguard Canada’s FTSE Global All Cap ex Canada Index ETF 

Consider this Canadian-listed ETF to own stocks from around the world beyond Canada’s borders.  The management fee is 0.27%.  Historically about 50% of the fund’s holdings are with U.S. equities.

Like other “top” ETF blogposts no doubt I’ve missed a few.  Let me know some of your favourite international ETFs or dividend ETFs in a comment below.  Discuss away.  Thanks for reading.

Update:  You can read more about how I manage my portfolio here and here, including how withholding taxes may apply to your ETF assets. 

Mark Seed is the founder, editor and owner of My Own Advisor. As my own financial advisor, I've grown our portfolio from $100,000 to well over $500,000. Our next big goal is to own a $1 million investment portfolio for an early retirement. Come follow my saving and investing journey by subscribing to my site. Enter your email address: Delivered by Subscribe to My Own Advisor by Email

29 Responses to "Top International Dividend ETFs for your portfolio – 2017"

  1. Great post I was looking forward to. I thought I would see this one on your list as well:

    ZDI – BMO International Dividend ETF

    Decent cost and yield.

    Reply
    1. Interesting product (BMO’s International Dividend ETF) and I could have easily added this one (ZDI) to the list. An omission really! Decent MER (0.44%), 102 assets and holdings largely ex-US (most geographical holdings from UK, Australia, France and Spain). Monthly distribution is good and distribution yield is over 4%.

      I think this is a good candidate to complement ZDV (Canada) and ZDY (U.S. Dividend). Added! Thanks ddivadius.

      Reply
  2. Some good etf choices for those looking to diversify their portfolio with international holdings, many of which have relatively high yielding payouts.

    Reply
    1. Thanks RBull. I could easy see a blend of BMO’s or Vanguard’s “dividend ETFs” being a good way to go for many retirees: focus on income; capital preservation and some long term price gains.

      Reply
      1. Agree. I use a slightly different approach with a blend of Vanguard and Ishares for international- one low cost broad market and one dividend focused etf -both in your list.

        I would suggest also people do a good amount of additional homework before choosing. For example PID is approx 35% Canadian which may or may not be suitable, and some ETFs may have short history.

        Reply
        1. Homework is key. When it comes to international dividend ETFs, I think ZDI is good for Canadian-listed. Fan of IDV for U.S.-listed.

          I’m leaning on owning more VYM for a low-cost U.S. dividend ETF and well, for Canada, I don’t own any! Individual stocks here at home due to oligopolies.

          Reply
  3. Fantastic post! This is of great value to those of us who tend to focus (too much?) on individual stocks and may be a bit weak on diversification.

    Reply
  4. Could you comment on how the following covered call BMO dividend ETFs would rank in the work you did previously on the Cdn and US listed Cdn and US dividend ETFs.
    BMO Canadian high dividend covered call etf – ZWC
    BMO US high dividend covered call etf – ZWH
    BMO US high dividend covered call etf(in $US) – ZWH.U

    Reply
    1. Thanks for your comment Mal. Sure, I could…recall “covered calls” are all about contracts…giving investors more options; the right to buy the stock back at a future set price. My understanding of these ETFs is this: investors earn premiums from selling these options, along with any dividends/distributions paid. Since option premiums are considered capital gains, distributions are tax efficient; which makes holding them in a taxable account appealing.

      To be honest, although these are intriguing products I don’t use them myself. I can appreciate these products provide higher distribution yields which are very attractive but you’re also paying more money in fees over time (higher MERs). Long-term I’m not sure there is much benefit from this as part of total returns but maybe I am wrong? Thoughts?

      Cheers
      Mark

      Reply
  5. I just use TD’s E-series. No charges to buy, minimum $100 per purchase and fairly low expenses. Due to the pseudo DRIPs there is always cash laying around and to buy ETFs in such small amounts would be counter productive for me.

    Reply
  6. Mark, thanks for your comments on BMO dividend and covered call dividend etfs.
    Looking at BMO detail shows for the Cdn listed Cdn dividend ZDV and the Cdn covered call dividend ZWC
    Covered call ZWC is much smaller, very new, with higher mer (0.72% vs 0.39%), but a higher claimed yield of 6.03% vs 4.31% for ZDV.
    Covered call ZWC is less diversified (30 vs 50 positions) but 23 holdings are common to both so they are essentially the same.
    Covered call ZWC does not have enough history to make a performance comparison. but presumably, the (probably) back tested 6.03% yield will relatively play out as higher toral return.
    The Cdn listed US dividend ZDY and US covered call dividend ZWH have been around longer so a performance comparison can be made.
    Ccovered call ZWH is smaller, newer, with higher mer (0.71 vs 0.33), but a much higher claimed yield of 5.52 vs 2.88 for ZDY.
    Covered call ZWH is less diversified (30 vs 100 positions) but 26 holdings are common to both so they are essentially the same.
    Now, here is the surprising part.
    Intuitively, you expect the covered call higher yield etf to have better compound annual growth rate.
    Not so.
    1 year cagr for covered call ZWH is 21.0% while ZWC is 26.7
    2 year cagr for covered call ZWH is 15.2% while ZWC is 18.9
    3 year cagr for covered call ZWH is 16.6% while ZWC is 19.6
    I bought some of the ZWC and ZWH covered call etfs but based on the above, will now change to the regular version.

    Reply
    1. I have nothing against the covered call ETFs from BMO, they definitely have merit, but do you have any concerns with their short histories? My understanding is most covered call ETFs are a) more expensive than others and b) have less holdings. Just something to be mindful of and not BMO specific.

      Thanks for the details Mal!

      Reply
  7. Hi Mark
    Great post as always. With ZDI, will the dividends be taxed with an automatic withholding tax as the individual investments are not Canadian companies? Also can the dividends from ZDI be treated favourably from a dividend tax credit perspective like a Canadian company’s dividends or treated as income?

    Thanks
    John

    Reply
    1. Always great to hear from fans John…

      With ZDI, a Canadian listed ETF that holds international assets, there will be foreign withholding taxes charged in addition to the posted MER (0.44%). So, the cost of ZDI is actually close to double that MER. The dividends will be “removed” right off the top – withheld – you will never see them.

      http://www.myownadvisor.ca/indexing/

      Using a Canadian-listed ETF inside the TFSA or RRSP, withholding taxes will apply. No way of getting around this unless you own a U.S.-listed ETF. This way, holding U.S.-listed ETFs (and U.S. stocks for that matter) you avoid the 15% U.S. withholding tax in an RRSP. TFSA, it applies, the IRS from the States does not yet consider the TFSA a “retirement account”. I do 🙂

      My understanding, without reading the prospectus mind you, is that dividends from ZDI do not get favourable tax treatment from our Canadian government. They are not eligible for the Canadian dividend tax credit.

      http://www.myownadvisor.ca/dividend-tax-credit-101/

      I hope that helps?
      Cheers,
      Mark

      Reply
      1. So I am confused about something. If I have $100,000 invested in ZDI in my TFSA and same amount in my RRSP. I lose 15% US WT on my dividends in both accounts (15% * (Div yield – MER)). However, when I eventually remove the dividends from my RRSP I am taxed again at my income tax rate. I will not be further taxed when removing the dividends from my TFSA. For $100,000 in a NR account the US withholding tax on dividends would be 15% (but you can get this back on tax return) plus you may also be taxed on dividend income (depending on your annual total amount of income).

        So based on this logic, it seems to me that the best place to hold this ETF would be in either an NR account (probably the best place) or TFSA, depending on your total taxable income.

        Do I have this correct or am I missing something here?

        Reply
        1. Hey ddivadius,

          Good to hear from you. See you around CMF as well!

          Canadian listed ETFs that hold U.S. AND foreign assets will lose at least 15% withholding tax.
          https://www2.deloitte.com/global/en/pages/tax/articles/global-tax-rates.html

          http://www.myownadvisor.ca/indexing/

          This is the best article I have found to explain all this:
          https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf

          “However, when I eventually remove the dividends from my RRSP I am taxed again at my income tax rate.”

          Correct. All income withdrawn from RRSP is treated like employment income.

          “I will not be further taxed when removing the dividends from my TFSA.”

          Also correct. TFSA = tax-free out because you paid with after-tax money to “get in”.

          “For $100,000 in a NR account the US withholding tax on dividends would be 15% (but you can get this back on tax return) plus you may also be taxed on dividend income (depending on your annual total amount of income).”

          Correct.

          Personally, I prefer to own U.S.-listed ETFs in my RRSP (and I do!). Put Canadian-listed ETFs in my TFSA (if I had any) AND put Canadian-listed ETFs (that hold foreign assets) (if I had any)) in the NR account because withholding taxes are recoverable upon tax filing.

          Reply
          1. Ah thanks. This: “Personally, I prefer to own U.S.-listed ETFs in my RRSP (and I do!). Put Canadian-listed ETFs in my TFSA (if I had any) AND put Canadian-listed ETFs (that hold foreign assets) (if I had any)) in the NR account because withholding taxes are recoverable upon tax filing.”

            Pretty much what I was thinking as well. Just that I would also likely plan to hold a Canadian-listed ETF (that holds foreign assets) in my TFSA as well, since I still need to max these (DW’s and mine) before I start working on my NR account. Trying to figure out a Couch Potato portfolio using high dividend yield ETFs for my TFSA and ZDI looks like a good fit for the international bit.

            Thanks Mark

          2. I think it makes great sense to max out all TFSAs and RRSPs before investing in a NR account. I didn’t do that years ago, but have since maxed out my TFSA and RRSP. I now have a growing NR account as well. Just as long as you understand the CDN-listed ETF (holding foreign assets) is subject to withholding taxes; you’re informed going in!

            If I had to pick one or two from the list, I like ZDI (CDN-listed) and IDV (US-listed). I like that ZDI is largely ex-US. You can hold VTI, VYM, VIG, etc. for your set and forget US Couch Potato asset.

            Cheers,
            Mark

  8. Yes, VWO is great. For developed markets, I would suggest looking at VIU and XEF (both are traded on TSX and hold shares directly. VIU makes a better pair for VWO.

    Reply
    1. Great to hear from you Mordko. VIU, interesting, I will consider adding that to my list my year although the yield is rather low so hardly a dividend ETF. Hard to knock the diversification and low fee. Great for long-term total return. A good fit for TFSA or RRSP. Thanks for sharing.

      Reply
  9. This is a great post Mark – Picked up a good idea or two 🙂
    I owe you a beer or three now at the Redblacks games this year

    Reply
  10. When you say that you have ETFs in your portfolio, that means that you manage your own portfolio through a brokerage, correct? If I want to get out of my mutual funds and my managed portfolio and buy ETFs through a brokerage, there are still some brokerage fees involved as well as the management fees for the individual ETFs. Is there a point at which managing your own portfolio of ETFs makes more sense than investing in ETFs through a FinTech company such as WealthSimple or other similar companies who manage portfolios on ETFs? For example does the do it yourself route make sense for less than $250K in investments (both RSP and TFSA)? I have 7 years until retirement.

    Reply
    1. Correct Beth. I have use a discount brokerage and I manage the buying (and selling, although I don’t do that very much) all on my own. Hence the blog name!

      If you want to get out of your mutual funds there might be fees involved, there could be what is called “back end loads” or trailer fees. The mutual fund prospectus will tell you. The advisor you bought the funds for you, should be able to tell you as well.

      When it comes to ETFs, they are more like stocks since you can buy and sell ETF units on an exchange. They act like mutual funds because your money is pooled with other people’s money to create assets under management. So, there is a fee involved to buy them. However, some discount brokerages now offer FREE ETF purchases:
      Questrade is one. I have a link on my site for them (affiliate).

      I also have a partnership with ModernAdvisor (a FinTech company). They are also an affiliate. I know the CEO and he is passionate about helping investors. There is no obligation, you can consider a free trial with them!
      http://www.myownadvisor.ca/hassle-free-investing-modernadvisor/

      As for your question, does it make sense for the DIY investor with less than $250K in investments (both RSP and TFSA)? I really can’t answer that question for you, I can’t offer investing advice. I will say that regardless of your decision, the key to being a successful investor is having a plan; staying the course; staying diversified; and keeping your investing costs very low.

      Reply
  11. Mark,
    How and with whom can I start a monthly pre-authorized withdrawal plan so that I may start saving money in a ETF (TFSA) etc.
    Just need to start and need a hand at that please.
    Thank you

    Reply

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