As a devout dividend investor, I am always looking for dividend opportunities which will help insulate me monetarily (and emotionally) from market volatility. While most ETF investors are familiar with domestic names in the ETF dividend-focused arena, many are not as familiar with overseas options for collecting equity income. For allocation purposes, the search was divided between developed markets and emerging markets, looking at three separate fund families for each.
Developed Market Income Opportunities
iShares, Vanguard and Wisdom Tree provide three solid options for international investing; iShares MSCI EAFE Index (EFA), Vanguard FTSE All World (VEU) and Wisdom Tree International Dividend ex-Financials (DOO). While EFA is the grand-daddy of my international ETF options, it has been losing the battle of the expense war with Vanguard, touting a 34 bps cost to investors verses the VEU published cost of 18 bps. Yields on these two funds are nearly identical at approximately 3.10%, as a 12-month yield. Wisdom Tree's DOO, however, significantly increases shareholder distributions with its 4.40% 12-month yield. But that higher yield is not without increased risk, as this fund focuses its efforts on the highest yielding stocks. I never recommend chasing yield for yield sake, and a little bit of additional research indicates DOO lags EFA, for total return year-to-date, as well as over the past 1- and 5-year periods. It also trails VEU over year-to-date, 1-, 3- and 5-year periods. Based on this, ETF investors seeking diversified dividends might take a hard look at VEU. Though its yield approximates EFA, its lower expense ratio may make a difference to not only current yield, but also long-term total return.
Emerging Markets Dividend Possibilities
A relative newcomer to the diversified emerging markets (opened in mid-2007), Wisdom Tree Emerging Markets Equity Income (DEM) has managed to gather sufficient assets to stave off liquidity objections, as it battles the more mature offerings from iShares MSCI Emerging Market Index (EEM) and the Vanguard Emerging Market (VWO). From an expense standpoint, DEM has an expense ratio of 63 bps which is triple that of the low-cost VWO, at 20 bps. And while VWO has a slight year-to-date total return advantage over both DEM and EEM, Wisdom Tree earns its higher cost and is the clear victor for 12-month yield, slightly over 4%, and total return over all periods since its 2007 inception.
Domestic verses International
Volatility and uncertainty will remain a mainstay of international investing, both short-term, and long-term, but income oriented ETF investors should not feel land-locked for domestic offerings only. With top domestic funds such as Vanguard High Yield Index (VYM) and Vanguard Dividend Appreciation (VIG) sporting diversified yields south of 3%, growth and income investors might consider researching a 15-20% allocation to VEU and a 5-10% allocation to DEM. International allocations remain a vital part of a diversified portfolio, and that allocation can be focused to the income-minded investor.
Disclaimer: The above article has been written utilizing data from publicly available sources, which are believed to be reliable, and is provided for informational and educational purposes only. Investors should consider their personal situation and become intimately familiar with any investment, including its prospectus, before investing. Past performance and current yields are no guarantee of future results.