This unforgiving market has generated a renewed interest in finding stocks that not only have upside potential, but also generate income without carrying excessive risk. This can be a tall order in any market, much less in the current environment where 200-plus point swings have become common place.
With the Standard & Poor’s 500 Index yielding barely 2%, the hunt for yield has turned global. Investors can capture growth, dividend income, and hedge against risk by looking to non-US based corporations as well as ETFs and mutual funds that hold dividend paying foreign securities.
Gains made from overseas investments can also prove to be more advantageous to dollar-based investors in the event that the US dollar remains weak. While corporate earnings growth remains unclear, investors are looking for predictable, steady income to ride out market volatility.
Historically, dividends have been a large part of a diversified portfolio, and there has been an increased focus on dividend paying stocks in recent years, as the “pay-to-wait” aspect of these types of securities has made them more and more appealing to investors.
While foreign stocks have come into focus for their growth potential, there are risks associated with investing in foreign corporations. The best way to minimize risk while gaining exposure to these markets, and realize dividend income for your portfolio, is to look to international ETFs that focus on dividend paying securities.
ETFs For Broad Market Exposure And Dividend Income
The dividend yield on the Stoxx Europe 600 Index, for example, is 4.67%. This index is comprised of corporations both large and small spanning 18 European countries. The First Trust Stoxx European Select Dividend Index (FDD) currently yields around 5%, and tracks the performance of 30 high-yielding corporations from the broad index that comprises the Stoxx Europe Dividend 30 Index.
While these ETFs produce considerable dividend income for international investors, in light of economic concerns in Europe, the upside potential for these ETFs may be limited for the time being, and it is advised for investors to consider a longer time frame for this type of play into the foreign market.
Two ETFs to consider for your portfolio that offers more broad-based international exposure is the SPDR S&P International Dividend (DWX) as well as the iShares Dow Jones International Select Dividend Index (IDV). These international ETFs offer exposure to global stocks, without the need to research each corporation individually.
Dividend Income And Upside Potential
Although research on each company held in the ETF is not necessary, it is always a good idea to look into the ETF’s holdings, as it could be weighted more heavily in a country or sector than you would like. ETFs that track a mix of securities from various countries, as well as a mix of sectors could help to mitigate risk better than a country-specific ETF, or one that is too heavily weighted in a specific industry or sector.
For this reason, you may want to consider a play for dividend income on the SPDR S&P International Dividend (DWX), which is designed to track the performance of the 100 highest dividend yielding international stocks. The SPDR S&P International Dividend (DWX) currently yields around 5.6%, and the top holdings include Australian stock exchange operator ASX, Telecomunicacoes de Sao Paulo, and Tele2 Ab, a Swedish telecom provider.
iShares Dow Jones International Select Dividend Index (IDV) is designed to track the performance of 103 dividend paying companies, and currently yields 4.8%. The funds largest holding include British American Tobacco, Commonwealth Bank of Australia, and an Italian oil and natural gas provider Eni.
While these ETFs are not without risk, their broad global holdings, steady dividend income, and upside potential could provide your portfolio with the growth potential and income you need to weather the ups and downs of the current market.