Sunday, August 17, 2008

International Dividend Payers Can Diversify Portfolio

Dividend growth stocks are not only a U.S. company phenomenom. More investors are looking to non-U.S. investments for dividend growth investment opportunities. For a U.S. investor, access to these types of investments can be obtained via ADRs, exchange traded funds and/or mutual funds.

A recent article in The Wall Street Journal highlighted some foreign dividend opportunities. The Journal article noted the yield on the MSCI EAFE Index of 3.7% is higher than the 2.4% yield on the S&P 500 Index. Also highlighted was the fact that foreign firms tend to pay out more of their earnings to shareholders in the form of dividend payments then U.S. companies. Lastly, the Journal indicates:

...there are 22 foreign dividend-oriented exchange-traded funds, mostly launched since 2006. Sixteen of these are from WisdomTree Investments Inc., a company which subscribes to the research of Jeremy Siegel, a professor at the University of Pennsylvania, who believes that dividends are the most objective way to value a company.

The ETFs go from broad ones, such as the PowerShares International Dividend Achievers Porfolio (PID), launched in 2005 and yielding 4.1%, to specialized ones such as the WisdomTree International SmallCap Dividend (DLS), which currently yields 2.6%. These are two of the largest such ETFs, with slightly more than $460 million in assets.

The foreign-focused fund with the highest yield currently is Henderson Global Equity Income (HFQAX), with a 12-month yield of 8.8%, followed by the iShares Dow Jones EPAC Select Dividend ETF (IDV) with an 8.3% yield. The highest-yielding fund may not be suitable for all investors. For instance, the iShares DJ EPAC ETF has 50% of its assets in financials.

As is the case with U.S. dividend growers, many of the international funds are concentrated in the financial sector. An investor should evaluate the appropriateness of these fund investments to insure the sector allocation is in line with the goals and objectives of ones overall investment expectations.


The Dividends From Far, Far Away
The Wall Street Journal
By: Shefali Anand
August 16, 2008

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