Top International Dividend ETFs for 2018
What makes a great Exchange Traded Fund (ETF)? What makes a solid international dividend Exchange Traded Fund for your portfolio?
Welcome to the final post in my series and let’s find out!
Let’s back up the truck – what is an ETF and what are the benefits of owning them?
In my last few dividend-oriented posts, I’ve profiled the following:
In these posts above I highlighted some benefits that ETFs (in general) can offer investors:
- An ETF (Exchange Traded Fund) is a diverse collection of assets (like a mutual fund) that trades on an exchange (like a stock does). This makes an ETF a marketable security.
- Like stocks, since they are bought and sold on an exchange, ETFs can experience price changes throughout the day (although frequently buying and selling of ETFs is not encouraged by me!)
- ETFs typically have lower fees than mutual funds (although not always), which can make them an attractive alternative to equity and bond mutual funds.
- ETFs are easy to buy using a discount brokerage.
- ETFs offer high transparency. Within a few clicks of a button you can find out exactly everything the ETF owns – how many stocks, what % of stocks; bond or cash allocations and much more.
- ETFs can track an index, follow an industry sector, be rules-based like some smart-beta funds are, or be much more. (For the most part, I prefer either plain vanilla, broad market equity indexed ETFs or dividend ETFs. This is because the former provides market-like returns less skimpy money management fees. The latter, those dividend ETFs, can provide income; tangible money you and I can use as we please while offering some long-term growth.)
- ETFs can offer tremendous diversification, reducing individual stock risks, industry risk, or even country bias. While diversification is often the best ally against these risks, but mindful that diversification as a risk mitigation tactic (against stock picking) isn’t bulletproof. (Typically the larger the ETF equity holdings are, the better the chance you’ll own both stock duds and studs as well.)
The benefits of ETFs are a plenty friends…but….
I like dividend ETFs, especially U.S.-listed ETFs, for a few reasons.
- The U.S. market is very tough to “cherry pick” versus our Canadian market. The international market is even more complex to navigate! More on that in a bit with my top international dividend ETF picks! When it comes to the U.S., you would need to own a few dozen U.S. stocks to have some modest diversification across various S&P 500 industry sectors. Even then, the success of any company long-term is difficult to predict. I mean, who knew even 5 years ago that Amazon, Microsoft, Apple, Facebook, along with other tech companies, would absolutely dominate the S&P 500 top-holdings? By owning a U.S. dividend ETF like some of those I’ve listed here you can take some of the guesswork out of stock picking. You can get diversification – instantly – for a small ongoing money management fee.
- While dividends and capital gains are often two sides of the same coin (you don’t often get huge quantities of both) you can have your cake and eat it too. I’m confident you’ll earn some income and some growth by owning some of my top-U.S. listed ETFs long-term. Why? I’ll make the argument that many U.S. stocks including ones that reward shareholders via dividends every month or quarter due so because of their multinational nature – these aren’t solely U.S. companies after all. This means as some of these U.S. multinationals grow abroad, you’ll ride that wave too.
While I’m on the theme, and before we get to my top low-cost international dividend ETFs, here are some reasons why I don’t invest in Canadian dividend ETFs, yet:
- Some Canadian dividend ETFs have specific criteria and measure some constructed indexes I don’t fully agree with – yet. For example, the iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ) uses a screen for “…Canadian companies that increased ordinary cash dividends every year for at least five consecutive years.” Some great stocks aren’t at the top of this fund’s list and some stocks I wouldn’t bother owning. Note – CDZ didn’t make my top fund list anyhow!
- Based on the oligopoly nature of the Canadian market (dominated by big banks, big pipelines, big telcos, big utility companies, you get the idea), by owning individual Canadian dividend paying stocks I don’t pay any money management fees.
- My goal is to have some control over the Canadian content in my portfolio. I’ll have no such choice with any Canadian dividend fund. My long term goal is to grow my dividend stock portfolio to the point where I can live off part of the income in retirement. I’ve been on this journey for a few years now and the progress is starting to show. By owning individual stocks, I’m in control of the portfolio. I can weigh the Canadian companies however I wish.
- Some Canadian stocks offer a discount for DRIPping shares, some up to 5%. I wouldn’t be able to take advantage of this if I owned a Canadian dividend fund.
- With some Canadian dividend ETFs, the distribution does not increase very much over time. I don’t know about you, but I would like my income and/or my capital gains to rise over the long haul.
- Finally, while I mentioned above all the Canadian dividend ETFs have different stock selection criteria; thus their top-10 or top-20 holdings vary when it comes to company weights – the companies held by each fund really don’t vary very much. You can see an older post that highlights this phenomenon here.
So, you can now see I’m a BIG fan of owning some U.S.-listed ETFs, alongside some individual U.S. stocks, to provide some diversification to my 30-40 Canadian stocks for an income-oriented portfolio. Your mileage may vary.
What are my favourite international dividend ETFs? What I am considering owning at some point to deliver income and growth during my retirement? Here is the list!
My top international dividend ETFs
All data and information is current at the time of this post:
|Vanguard International Dividend Appreciation ETF (VIGI)||NASDAQ International Dividend Achievers Select Index||0.25%||311||1.8%||n/a|
|Vanguard International High Dividend Yield ETF (VYMI)||FTSE All-World ex US High Dividend Yield Index||0.32%||925||3.7%||n/a|
|iShares International Select Dividend ETF (IDV)||Dow Jones EPAC Select Dividend Index||0.50%||99||4.8%||5.16%|
|State Street SPDR S&P International Dividend ETF (DWX)||S&P International Dividend Opportunities Index||0.45%||101||4.9%||2.27%|
|State Street SPDR S&P Global Dividend ETF (WDIV)||S&P Global Dividend Aristocrats Index||0.40%||99||4.1%||7.09%|
Remember my VIG pick here? You know, the U.S. dividend fund with over $36 billion in assets under management? Well, this is the international companion to it. With a modest MER you get access to 300+ international dividend growers. 5-year returns, let alone 3-year returns aren’t available yet due to the fund’s history but since inception it’s returned about 13%.
Image from Vanguard.
Like VIG is to VIGI, same goes for VYM to VYMI – but with hundreds more international stocks for your portfolio. With an incremental MER cost over VIGI, you have ownership in 900+ international dividend paying stocks; ~20% from emerging markets, ~53% from Europe, ~20% from pacific countries and the rest from around the world including North America. Arguably one of the best international dividend ETFs to own for 3.5%+ consistent yield. This one has you covered.
Image from Vanguard.
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 a great fund to partner with a low-cost international equity ETF like any of the following for growth:
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 emerging markets product but remember with high potential returns comes high risk and volatility short-term.
This product gives investors broad exposure to major stock markets around the world, ex-United States. It’s very cheap and highly diversified; over 6,300 companies! Win-Win. Hard to beat this fund for any international exposure if you’re focused on growth.
Consider this Canadian-listed ETF the only one you need to own, when in doubt amongst many choices, for exposure beyond Canada’s borders. The management fee is just 0.27%. Historically about 50% of the fund’s holdings are with U.S. equities.
Image from iShares.
This U.S.–listed ETF gives you exposure to about 100 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 (~25%), real estate (~15%), telecommunications (~15%), utilities (~13%), and less for others. High yield is a big draw. On the flipside, the 5-year return is low (under 3%) but many international funds haven’t been exactly stellar (when compared to the U.S. market) in recent years either.
Image from State Street.
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 and 20% Canadian stocks, so you’ll probably have some overlap if you own this product when you combine it with any Canadian or U.S. dividend ETF. That said, this fund is still stellar for yield and 5-year returns have been strong thanks in part to a red-hot U.S. market.
Image from State Street.
No doubt this list could go on, and on, including providing honourable mentions to a Canadian-listed ETF like BMO’s ZDI, an international ETF that owns ~100 holdings; sports a tidy 0.44% MER with 4% yield, but I hope you get the idea now. Some of my top international dividend ETFs are those products that have a modest number of holdings, keep fees under 0.50%; provide sector and geographical diversity, along with some income and growth for your portfolio for years to come.
As always, when unsure about the products that fit within your financial plan, please consult a financial professional before making any major investment decisions.
What are your top international dividend ETFs? Do you own any? Do you own other international ETFs instead? If so, which ones and why?
More ETF reading: