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International Dividend ETF’s
With a large portion of my portfolio holdings in Canada, I came to the conclusion that I should have more foreign content. While indexing into foreign equities is great (see my diversified ETF portfolio), I’m particularly interested in obtaining some global dividends to add to my Canadian dividend stream.
Since foreign dividends are taxed like interest (100% at your marginal rate), I would be placing these equities in a tax sheltered account like an RRSP or TFSA.
What is my criteria for an international dividend ETF? I would prefer to buy an ETF that focuses on strong dividend payers that meet the dividend achievers criteria. That is, they have shown a history of dividend increases over a set period of time.
Based on my research, here are a few International Dividend ETF’s that I like:
Vanguard Dividend Appreciation ETF (VIG)
…Vanguard Dividend Appreciation ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.
- Management Expense Ratio (MER): 0.28%
- Current Yield: 3.05%
- U.S Exposure: Yes
- Canada Exposure: No
- International Exposure: No
Vanguard High Dividend Yield ETF (VYM)
…Vanguard High Dividend Yield ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yields.
- Management Expense Ratio (MER): 0.25%
- Current Yield: 5.11%
- U.S Exposure: Yes
- Canada Exposure: No
- International Exposure: No
PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ)
..seeks to replicate, before fees and expenses, the High Growth Rate Dividend Achievers™ Index, which is designed to identify the 100 Dividend Achiever™ companies with the highest 10 year annual dividend growth rate. These companies have increased their annual dividend for ten or more consecutive fiscal years.
- Management Expense Ratio (MER): 0.61%
- Current Yield: 5.70%
- U.S Exposure: Yes
- Canada Exposure: No
- International Exposure: No
PowerShares Dividend Achievers Portfolio (PFM)
…seeks to replicate, before fees and expenses, the Broad Dividend Achievers™ Index, which is designed to identify a diversified group of dividend paying companies. These companies have increased their annual dividend for ten or more consecutive fiscal years.
- Management Expense Ratio (MER): 0.61%
- Current Yield: 3.14%
- U.S Exposure: Yes
- Canada Exposure: No
- International Exposure: No
PowerShares International Dividend Achievers Portfolio (PID)
…seeks to replicate, before fees and expenses, the International Dividend Achievers™ Index, which is designed to identify an international group of American Depository Receipts that have qualified as International Dividend Achievers™. These companies have increased their annual dividend for five or more consecutive fiscal years.
- Management Expense Ratio (MER): 0.60%
- Current Yield: 3.55%
- U.S Exposure: Yes
- Canada Exposure:Yes
- International Exposure: Yes
- Top 5 Countries: United Kingdom, Canada, Japan, Netherlands, Ireland
WisdomTree International LargeCap Dividend Fund (DOL)
Fundamentally weighted index that measures the performance of the large-capitalization segment of the dividend-paying market in the industrialized world outside the U.S. and Canada. The Index is comprised of the 300 largest companies ranked by market capitalization from the WisdomTree DEFA Index. Companies are weighted in the Index based on annual cash dividends paid.
- MER: 0.48%
- Current Yield: 6.86%
- U.S Exposure: No
- Canada Exposure: No
- International Exposure: Yes
- Top 5 Countries: United Kingdom, France, Japan, Germany, Australia
WisdomTree International Dividend Top 100 Fund (DOO)
..seeks to track the performance of the 100 highest dividend-yielding companies in the WisdomTree International LargeCap Dividend Index. The Index is created by selecting the top 100 companies ranked by highest dividend yield from the WisdomTree International LargeCap Dividend Index at the annual index measurement date.
- MER: 0.58%
- Current Yield: 12.81%
- U.S Exposure: No
- Canada Exposure: No
- International Exposure: Yes
- Top 5 Countries: France, Australia, United Kingdom, Italy, Germany
Final Thoughts
Personally, I like the PowerShares products as they compose the ETF’s listed based on the dividend achievers criteria. If I was looking for a decent U.S based dividend ETF, I would pick either PHJ or PFM. As I have quite a bit of Canadian dividend exposure already, I’m avoiding any dividend ETF’s that are heavy in Canada.
Update: I seemed to have missed out the Vanguard offering when I originally wrote this post. I have since updated with VIG and VYM. Both are solid products for U.S dividend exposure with lower MER’s than the rest.
With the U.S covered, both DOL and DOO seem like decent choices, however, they do not follow the dividend achievers criteria. Of the two, DOL is my preferred choice as it has a lower expense ratio and it doesn’t chase yields like DOO.
Do you know of any other international ETF’s that would be worth mentioning?
26 Comments, Comment or Ping
1. cannon_fodder
FT,
What about the comment in this article that
“The Canada-United States tax treaty exempts U.S. dividends from withholding tax when paid to an RRSP or RRIF. But that same break does not apply to a TFSA, making U.S. dividend-paying stocks better off in RRSPs.”?
http://www.financialpost.com/news/story.html?id=1261786
Feb 9th, 2009 @ 10:07 am
2. FrugalTrader
Hi Cannon,
I read about that issue a little while back but didn’t find any conclusive evidence. It appears that any foreign dividends held within a TFSA will face withholding tax. I assume a 15% withholding tax?
Anyone know for sure?
FT
Feb 9th, 2009 @ 10:21 am
3. DG
I just got hit with 15% withholding on my VWO dividend in my RESP. I’m probably better off with a Canadian version of this fund, even if the MER is higher.
If my trade costs were low enough, I could sell the whole shebang just before the dividend and rebuy it after…
Anyway, maybe its time to lean on our MPs to get the TFSA and RESP into the tax treaty.
Feb 9th, 2009 @ 10:23 am
4. Money Minder
Have you looked at XIN? The yield is not as high, but is 100% RRSP eligible.
Feb 9th, 2009 @ 11:14 am
5. Cash Canuck
I would do a 30-70 split between PFM and DOL for international dividend exposure. It’s true that DOL is not based on dividend achievers, but it is fundamentally weighted. I would like to see more rules-based ETFs that are fundamentally as opposed to market cap weighted. This would help us avoid being overweight in the most recent stock-of-the-month.
One thing that scares me is the ridiculously high yield of DOO. What’s with that?
Does anyone know of a Canadian fundamentally weighted dividend ETF?
Feb 9th, 2009 @ 12:47 pm
6. FrugalTrader
Money Minder, XIN is the index for MSCI® EAFE and not specifically a dividend index.
Feb 9th, 2009 @ 1:56 pm
7. Matt
Cash Canuck,
Claymore offers a Canadian fundamental index ETF (CRQ).
Feb 9th, 2009 @ 3:52 pm
8. Remus
Guys does any of you know of an ETF fitting the dividend achievers criteria but that is mostly focused on the Asian markets?
I know Peter Schiff sounds very alarmist but I think that for the international part of our portfolio I am willing to buy into his way of thinking for the long run, staying away from US dollar stocks and getting high yielding asian stocks denominated in asian currencies. His view + other analysts I respect (Marc faber, Jim rogers etc) is that there lies the future so I think it would make sense to get some of that.
So the question remains: anybody owns or knows any of these ETFs?
thanks
Feb 9th, 2009 @ 4:03 pm
9. Matt
Hey FT,
Why no mentioned of Vangaurd High Dividend Yield ETF (VYM)? It has a 5.11% yeild, is comprised of all US stocks, follows FTSE High Dividend Yield Index, and has a minute .25% MER.
Feb 9th, 2009 @ 4:35 pm
10. Matt
A follow up to the above:
Vanguard also offers Dividend Appreciation ETF (VIG) with a .28% MER and a 3.04% yield. It tracks Mergents Broad Dividend Achievers index.
Feb 9th, 2009 @ 4:50 pm
11. Percy
Hi there,
I’ve been looking at dividend etfs as well and was deciding between VIG or SDY. Any comment on either and why they weren’t included on your list?
Thanks!
Feb 9th, 2009 @ 4:52 pm
12. FrugalTrader
Matt, thanks for the heads up. I will look into the Vanguard products a little further.
Feb 9th, 2009 @ 4:53 pm
13. Ray
I second the question asked by Remus, I believe at Schiff does. In fact, I’d like to buy an international ETF (NO USA) that doesn’t even trade on a US exchange. I’d like to buy directly from foreign markets and get my dividends in a foreign currency. The question is – how. Open an account with europac?
Feb 9th, 2009 @ 5:04 pm
14. Remus
Ray,
Europac from what I understood is a US broker an only deals with US clients, so canadians have now way of opening an account. I heard this question asked in his wall street unspun weekly radio show and he answered to this several times. However what he kind of recommended is for canadians to call in his brokers and get some investing ideas, meaning where europac is investing. Now I don’t know if that would be done for free or not (I highly doubt it) but let’s stay focused, we are DIY investors we want no extra costs ok? :) I would be great to get some investements picks from his company for free but if we can’t not a big deal. As of matter of fact from all his appereances I extracted some examples he gave so maybe is interesting following their evolution just to give an idea. Personally I do think his view for the long term is good and his austrian economics way of looking at the economy and we should try at least to stay away from US assets.
His list included:
1. Ascendas REIT (AEMN.SI)
P/E 8.4, yield 12.9%
2. Singapore Petroleum (SPCS.SI)
P/E 5.5, Yield 11%
3. Baytex Energy Trust (BTE)
p/e 5.3, yield 16%
And there are a few more others I found in this article: http://money.cnn.com/2009/01/20/magazines/fortune/okeefe_schiff_sidebar.fortune/index.htm
Now again I think time will tell if he was right or wrong per his famous youtube video “peter schiff was right” :) if you know what I mean.
Anyway this is besides the point for us, because I would consider us as DIY investors and not stock pickers so our problem still stays: are there any ETFs for dividend asian stocks maybe trading on asian exchanges?
I called questrade today and asked how we can buy such things. They said not directly online via the regular broker (which gives you access to canada+US as you know) but instead you need to call in their brokers and do it over the phone. It will be more expensive though I am sure. But don’t have a price as I didn’t actually bought one… because I haven’t found that ETF yet :)
Also I know that HSBC has a lot of exposure to asian markets and I saw on their broker website a section about it (http://www.investdirect.hsbc.ca/markets_and_research/en/global_trading.aspx) so maybe they might be cheaper for that comparing to calling in to questrade for example. But this should be looked into. For US+Canadians stocks though HSBC I found to be too costly…
One thing is sure, buying that piece of mind to get out of US currency is pretty expensive for us canadians and in the end one might ask himself if it’s worth it… as probably canada will go down the drain too if US does. Schiff was more optimistic about us having so many resources but you never know really.
Feb 9th, 2009 @ 7:53 pm
15. Jamieson
<<I just got hit with 15% withholding on my VWO dividend in my RESP. I’m probably better off with a Canadian version of this fund, even if the MER is higher.
Interesting DG – I was thinking about putting 15K into the following portfolio (and a similar 15K for my wife) before the March 2nd RRSP deadline:
XIC: 3750 (25%)
VTI: 4500 (30%)
VEA: 3000 (20%)
VWO: 1500 (10%)
XSB: 750 (5%)
XRB: 750 (5%)
XRE: 750 (5%)
Is there no way to get around the 15% withholding on the dividends?
Maybe it’s worthwhile to simply stick with the Canadian ishares equivalents – forget Vanguard altogther??
Thoughts?
Feb 9th, 2009 @ 9:10 pm
16. DG
Jamieson: I have VTI and VEA in my RRSP and there was no withholding. It’s only the retirement accounts that don’t get withheld, everything else does (unregistered, RESP, and probably TFSA)
Feb 9th, 2009 @ 9:28 pm
17. rk
Before I discovered this site and jumped on the ETF band wagon I was duped into thinking that mutual funds were the best way to diversify your portfolio. That said, the one mutual fund I eventually purchased was the Chou Asia Fund (http://www.choufunds.com/asia.html) to give me exposure to Asian growth in my RRSP.
The fund has a 1.74% MER but Chou has had pretty solid results in some of his other funds over 25 years. Granted, past performance is not an indicator or future success but he has a strict set “margin of safety” criteria.
What do you guys think about using this fund to get Asia exposure?
Feb 10th, 2009 @ 12:15 am
18. Sampson
Jamieson,
Not to give advice… but you might also want to do some DCA into your RRSP and reduce the chance you buy high during ‘RRSP season’
Feb 10th, 2009 @ 12:21 am
19. Remus
RK,
Others may look deeper into that fund but for me personally is too expensive and also has a 2% redemption fee for selling before 2 years which is a little much.
I am searching for ETFs, and especially not asian stocks etfs but ETFs fitting the dividend achievers criteria containing high yielding asian stocks. Which is not an easy find hence my asking about advice in here.
I think that mutual fund you mentioned has mainly stocks and is not focused on dividend ones like the topic of this post was all about.
Feb 10th, 2009 @ 2:08 am
20. Dividend Growth Investor
The broad dividend achievers ETF (PFM) would have been one of my two dividend ETF choices if I weren’t buying individual dividend stocks instead.
The other ETF that I would have invested is SDY which tracks 50 highest yielding dividend aristocrats in US. If you wanted a one stop shop of the world’s best best dividend growth stocks, such as Mcdonals, Johnson & Johnson, Pepsi, Coca Cola, Procter & Gamble, this is the ETF for you.
Feb 10th, 2009 @ 6:46 am
21. rk
Sorry, I went off topic there. Has anyone looked into Claymore/Zacks International Multi-Asset Income Index ETF (HGI on NYSE)? It’s currently yielding 9.23%. It seems to be pretty well diversified across a few countries (http://www.claymoresecurities.com/etf/fund/hgi/holdings)
Feb 10th, 2009 @ 11:07 am
22. FrugalTrader
DGI, I did some research on SDY, and I didnt’ see any of those big names in their top holdings. http://finance.yahoo.com/q/hl?s=SDY. From the link, it seems that they hold mostly financials.
Am I looking at the right ETF?
Feb 10th, 2009 @ 11:15 am
23. FrugalTrader
I added VIG and VYM to the post.
Feb 10th, 2009 @ 11:30 am
24. Sampson
No love for Barclays’ products eh? ;) I own SDY and agree with you FT, its not the most balanced index, but iShares DVY would the the closest competitor to those you already list.
Feb 10th, 2009 @ 3:06 pm
25. Matt
FT,
Thanks for this post. It has really changed the way I am viewing my TFSA as I am attempting to build a solid dividend portfolio and of course am trying to minimize taxes.
The iShares DJ EPAC (IDV) fund is interesting for the international component. I actually came across it checking out the PID overview. When you look at the growth of $10K on their chart, the DJ EPAC Index has a significant higher (i.e. 50%) return over 10 years.
Interesting numbers….
I do like the Dividend Achiever’s criteria however, the DJ Dividend Indexes have had some nice returns as well.
THoughts?
Feb 10th, 2009 @ 5:00 pm
26. AJ_Mississauga_Newbie
How about Claymore Global Monthly Advantaged Dividend ETF “CYH-T”? It has monthly distribution.
Jul 29th, 2009 @ 3:50 pm
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