Monday April 16, 2012
by Mark Salzinger, editor The Investor's ETF Report
In our view, iShares DJ EPAC Select Dividend (IDV) is the best choice for investors seeking high dividends from foreign stocks.
Yielding 5.4%, it screens stocks in the Dow Jones EPAC Index (Europe, Pacific, Asia and Canada) for those that have paid dividends for at least three consecutive years.
In addition, it screens for stocks whose most recent per-share dividend is greater than the average of their per-share dividends for the past three years.
These measures are meant to establish that the company has some history of dividend payments and that the dividend is growing.
IDV is the only foreign high-dividend ETF that screens stocks based on their payout ratios — the percentage of earnings that are paid as cash dividends.
Stocks must have a five-year average payout ratio less than 1.5 times the five-year average payout ratio for all stocks in their country.
This decreases risk by eliminating companies whose payout ratios are unsustainably high or unusually high relative to their peers. The 100 highest-yielding stocks that meet the dividend growth and payout requirements are then weighted according to yield in IDV’s portfolio.
Like most high-dividend ETFs, IDV has a significant weighting in financials (about 20% of the portfolio), but another five sectors (utilities, consumer staples, oil and gas, telecommunications and industrials) each account for between 10.5% and 14% of the portfolio, making it one of the more evenly diversified high-dividend portfolios.
IDV has its largest country allocations in Australia (18%) and the U.K. (17%), followed by France (8%), Hong Kong (7%), Italy (6%) and Germany (6%).
IDV has the best record among high dividend foreign stock ETFs that invest primarily in developed markets. Its 4.4% loss over the past year is less than that of the MSCI EAFE Index (which lost 5.4% over that time).
Its longer-term record is also impressive, with a three-year-annualized return of 27.9%, vs. 15.9% for the index. IDV’s expense ratio is 0.50%.
Learn more about this financial newsletter at Mark Salzinger's The Investor's ETF Report.