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ETF Specialist

Our Favorite International Dividend ETF

High quality and low volatility give this international dividend ETF an edge.

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Investors have many choices when it comes to dividend-focused international-equity exchange-traded funds.  PowerShares International Dividend Achievers (PID) is one of our favorites for its quality focus and relatively low volatility. Instead of chasing the highest yield available like many of its competitors do, PID targets durable companies by employing quality screens. This fund is suitable as a small core allocation for investors comfortable with PID’s slight contrarian tilt. This fund can also be used to add to an existing international-equity allocation, as valuations continue to be attractive relative to U.S. equities.

The rationale behind domestic dividend investing applies to foreign equity. Studies show that a strong dividend payout ratio is correlated with higher earnings growth and solid fundamentals. By paying out dividends to investors, managers are forced to use cash responsibly and efficiently instead of going on a buying spree. The opposing view states that holding back cash means managers see opportunities to reinvest in the company to grow future earnings, but the data show that dividend payers outperform nonpaying firms almost all of the time.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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