It has been a strong year of gains for domestic dividend-paying
stocks with the
iShares Select Dividend ETF
(NYSEARCA:DVY) posting returns of over 17% so far in 2013. Money
has flowed into the US market and fed this momentum, which has
caused both developed international and emerging market countries
to lag behind. However, that trend may be changing as we have
recently seen a renewed surge in dividend-paying stocks of overseas
iShares International Select Dividend ETF
(NYSEARCA:IDV) as well as the
iShares Emerging Markets Dividend ETF
(NYSEARCA:DVYE) have picked up steam and appear to be poised for an
extension higher. In fact, IDV just recently broke above its May
high, which is a positive sign for the 102 stocks that make up this
divided machine. Since hitting a low in June, IDV has surged over
13% which has outpaced its domestic rivals.
Investors are starting to see value in this space as tensions over
a Middle East conflict have been quieted for the time being. In
addition, we may be seeing some rebalancing and diversification
away from domestic stocks and into international companies with
more attractive valuations.
One of the benefits of owning international dividend equity ETFs is
that they typically have higher yields than an equivalent domestic
counterpart. The current yield on IDV is 4.55%, while DVYE sports a
similar 4.37% dividend rate. That is a full percentage point higher
than the 3.55% yield on DVY which is an attractive quality for
income seekers. Like most stock funds, these dividends are paid
quarterly to shareholders.
The drawback is that a higher yield typically carries a higher
risk, as additional volatility will likely be attached to the
underlying stocks in these funds. Emerging market countries in
particular have been besieged this year by currency devaluations
which have acted as a headwind for upside growth.
I am still cautious about the potential for additional volatility
in the market during the month of September as investors digest the
uncertainty of global conflict, Federal Reserve actions, and future
economic growth. Stocks have been amazingly resilient this year,
but any unexpected new headlines could disrupt this uptrend.
If you currently have exposure to international or emerging market
dividend ETFs, I would continue to hold those positions with
cautious optimism right here. If fundamentals continue to improve
overseas, we will likely see additional outperformance from this
segment of the economy versus domestic stocks.
Read more from David Fabian, Managing Partner at Fabian Capital
How to Play the Sweet Spot in High-Yield Bonds
Waiting for the Turn in Emerging Markets
Will It Be a September to Remember?