The advantage of investing internationally lies mainly in broadened diversification, which cuts risk. Similarly, you can cut risk by investing in dividend-paying stocks.
Here are two complementary exchange-traded funds that together give you broad international diversification and the relative safety of dividend investing.
Vanguard Dividend Appreciation ETF (NYSE-VIG) tries to track the performance of the NASDAQ U.S. Dividend Achievers Select Index. The companies in this Index have a record of growing their dividends year over year.
The fund’s industry breakdown is as follows: industrials, 23.2 per cent; consumer goods, 18.5 per cent; consumer services, 14.8 per cent; technology, 10.4 per cent; health care, 10.2 per cent; oil and gas, 9.2 per cent; financials, 6.9 per cent; materials, 5.7 per cent; utilities, 1.0 per cent; and telecommunications, 0.1 per cent.
Vanguard Dividend Appreciation, which was launched in April, 2006, has a compound annual growth rate of 7.3 per cent since inception. Its expense ratio is 0.17 per cent.
Investors have shifted out of expensive, high-growth stocks into dividend-paying, large-cap stocks lately. Meanwhile, the U.S. economy is rebounding from a lackluster first quarter. At 18.3 times earnings, the ETF’s portfolio seems fairly valued, but the economic and corporate-profit backdrop should support further long-term gains.
Vanguard Dividend Appreciation Fund is a buy for long-term growth and some income.
iShares International Select Dividend ETF (NYSE-IDV) seeks to track the investment results of an index composed of relatively high dividend-paying equities in non-U.S. developed markets. Its benchmark index is the Dow Jones Europe, Pacific, Asia and Canada, or EPAC, Select Dividend Index.
The ETF’s geographic breakdown includes: Australia, 20.8; the U.K., 12.9 per cent; France, 10.3 per cent; Germany, 6.8 per cent; Finland, 6.8 per cent; Canada, 6.3 per cent; Italy, 5.3 per cent; Sweden, 4.3 per cent; New Zealand, 3.7 per cent; and Switzerland, 3.1 per cent.
The ETF’s top holdings are Prosiebensat1 (Germany: consumer services), 2.4 per cent; Belgacom SA (Belgium: telecommunications), 2.0 per cent; Telecom Corp. of New Zealand (New Zealand: telecommunications), 1.9 per cent; Orange SA (France: telecommunications), 1.6 per cent; AstraZeneca PLC (U.K.: health care), 1.5 per cent; EDP-Energies De Portugal SA (Portugal: utilities), 1.4 per cent; K+S AG (Germany: materials), 1.4 per cent; Metcash Ltd. (Australia, 1.3 per cent); and Canadian Oil Sands Ltd. (Canada: oil and gas), 1.3 per cent.
iShares International Select Dividend has been around since 2007. Its compound annual growth rate since then is 2.4 per cent. The ETF has an expense ratio of 0.50 per cent.
The fund’s broad diversification cuts risk in a global economy that’s expected to gradually improve these next couple of years.
iShares International Select Dividend is a long-term buy for growth and some income.
The MoneyLetter, MPL Communications Inc.
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The MoneyLetter •9/30/14 •