Fixed income investors reaching for more yield in this low-rate environment may want to take a trip overseas with the FlexShares International Quality Dividend Index Fund (IQDF).
The fund is one of the many dividend ETFs that FlexShares offers and one of the variants of the firm's popular international dividend funds. IQDF gives investors access to quality dividends that focus on stability.
A dividend ETF is an ideal alternative for investors looking to extract that extra slice of yield, especially in the current market. With IQDF, investors also get income diversification with its international holdings.
"A dividend exchange-traded fund (ETF) is an investment vehicle that owns shares of high-paying dividend companies," a Forbes article explained. "These are firms that distribute profits to their shareholders every quarter, six months or year through regular cash or stock payments."
“As a result of the low-interest rate Federal Reserve policy, many investors focused on living off the income from their portfolios are reaching for yield,” said Stanley Kon, Chairman of Ripsaw, LLC, and editor of the Journal of Fixed Income.
Per the fund description, IQDF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust International Quality Dividend Index. The index reflects the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust International Large Cap Index, a float-adjusted market-capitalization weighted index of non-U.S.-domiciled large- and mid-capitalization companies.
International dividend ETFs work much like their domestic high dividend counterparts; they simply invest in international companies instead of those based in the U.S.
Mitigating International Risks
FlexShares noted in IQDF's Fund Focus that investors may be enticed by international dividends simply for the higher yield. However, that doesn't always translate into the best investments—the key is to focus on sustainable yield over time.
"It can be tempting to simply choose international stocks with the highest dividend yield in an effort to boost a portfolio’s total return and income potential—but those high yields may come with higher risks," the Fund Focus explained.
"In our view, the key to successful international dividend investing is to focus not just on high dividend yields, but on sustainable dividend yields—in other words, dividend payments that are likely to continue in the future," the article added.
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