A Nifty Idea For International Dividends

Markets outside the United States, both developed and emerging, offer income investors compelling opportunities to find dividend growth and higher yields than equivalent U.S. stocks. Exchange-traded funds increase the accessibility of international dividend stocks.

One of the more interesting options among international dividend ETFs is also one of the newer members of that group of funds: the Vanguard International High Dividend Yield ETF (NASDAQ:VYMI). VYMI, which turns two years old in a few weeks, is the international equivalent of the highly popular Vanguard High Dividend Yield ETF (NYSE:VYM).

VYMI tracks the FTSE All-World ex US High Dividend Yield Index and holds 884 stocks, good for one of the largest rosters among all international dividend ETFs. The fund has rapidly established a following with investors, garnering $708.1 million in assets under management in just under two years on the market.

A Yield Play

VYMI's index ranks large- and mid-cap stocks by their expected dividend yield over the next 12 months and selects those that represent the higher-yielding half by market value, said Morningstar. Stocks that make the cut are weighted by market cap, which emphasizes companies that are large, stable, and less likely to be in financial distress. This increases the likelihood of holding stocks that can maintain or grow their dividend payments in the future.

On a trailing 12-month basis, VYMI yields around 3.2 percent, about 80 basis points above the dividend yield on the MSCI ACWI ex USA Index.

VYMI's geographic exposure is extensive, including a 19 percent allocation to emerging markets, but the UK and Switzerland combine for 26.1 percent of the ETF's weight. Those are two of the steadier ex-US dividend growth markets. Australia, one of the highest-yielding developed markets, and Canada combine for over 15 percent of VYMI's weight.

Currency Risk

This fund has exposure to multiple currencies from both developed and emerging markets, said Morningstar. Fluctuations between the U.S. dollar and these currencies can be an additional source of volatility. Like many of its peers, this fund does not take action to hedge this currency risk. Over long time periods, these fluctuations should wash out.

VYMI isn't a currency hedged ETF and is benefiting from the lengthy U.S. dollar slump. After sliding 9.1 percent last year, the U.S. Dollar Index is lower by nearly 3.2 percent to start 2018.

VYMI's portfolio sports a price-to-earnings ratio of 14.2, implying a significant discount to the S&P 500. The ETF's holdings have a median market value of $52 billion.

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