3 Strong International Dividend ETFs

Bryan Armour: U.S. stocks crushed their international counterparts over the past decade. Their advantage was attributable to a strong U.S. dollar, higher earnings growth, and price-multiple expansion. But the advantage for U.S. stocks may just be the latest in an ongoing tug of war between international and domestic markets, one that previously saw international stocks win out in the ‘70s, ‘80s, and 2000s. So, I wouldn’t anchor on recent performance.

The case for international investing right now is simple. Foreign stocks look cheap relative to domestic ones and come with a diversification benefit for U.S.-heavy portfolios. And investing abroad does not necessarily mean employing different strategies. All three international dividend ETFs I’ll cover today contain the same DNA as their highly rated U.S. siblings.

3 Strong International Dividend ETFs

1. Vanguard International High Dividend Yield Index ETF VYMI
2. Schwab International Dividend Equity ETF SCHY
3. Vanguard International Dividend Appreciation ETF VIGI

First on my list is Silver-rated Vanguard International High Dividend Yield Index ETF, ticker VYMI. This ETF strikes a good balance between pursuing stocks with high dividend yields and managing the associated risk. It tilts toward larger, more stable firms that should offer some downside protection.

VYMI typically delivers a trailing 12-month dividend yield that’s about 0.5 to 1.0 percentage point higher than its category index, MSCI ACWI ex USA Value. And it doesn’t give up total return to achieve a higher yield. It also beat the category index by nearly 1% annualized from inception through April 2023.

This fund effectively diversifies risk by holding over 1,300 stocks and applies market-cap weighting to avoid value traps. And it comes with a low fee of 22 basis points, making it a great core international dividend holding.

Second on my list is Silver-rated Schwab International Dividend Equity ETF, ticker SCHY. This fund builds its portfolio with a dual mandate of dependable yield and profitability.

It gives up a little yield in exchange for lower volatility, perhaps making it a better total-return strategy than income strategy alone. This strategy launched in 2021, so its track record is limited. But its sister U.S. strategy, ticker SCHD, has been a top performer over the past decade.

SCHY’s low fee of 14 basis points and attractive risk/return profile are why I own the fund and expect it to outperform over the long run.

Last on my list is Silver-rated Vanguard International Dividend Appreciation ETF, ticker VIGI. This strategy focuses its portfolio in high-quality companies with a long track record of consistent dividend growth. It includes stocks with at least seven consecutive years of increasing dividend payments and then cuts the highest-yielding names to avoid those most likely to cut their dividend payments in the future.

Targeting stocks with seven years of dividend growth is a strict hurdle that provides a big advantage. It indirectly targets profitable companies with the capacity and willingness to make dividend payments. But targeting profitable, stable companies comes with lower dividend yield, which is why I own this ETF for its total-return potential, not its income.

VIGI’s fee of 15 basis points gives it a durable advantage over more-expensive peers, and it comes with solid diversification, owning over 300 stocks. It should continue to be a higher performer in the long run.

Watch “What’s Ahead for BlackRock in 2023″ for more from Bryan Armour.