Choosing The Best European Dividend ETF
Last year, I compared U.S. dividend ETFs and gave readers a simple choice.
If you want current income, a high-yielding option like the iShares Dow Jones Select Dividend ETF (NYSE: DVY) is, I believe, your best option. But for long-term growth, you might be better off investing in the Vanguard Dividend Appreciation ETF (NYSE: VIG). Though it yields little more than the broad S&P 500, it’s comprised of companies with a long history of raising their dividends. I therefore consider this ETF a one-stop shop for high-quality growth companies.
I utilize both ETFs in my portfolios. VIG is the largest holding in both my Tactical ETF portfolio and in my Strategic Growth Allocation portfolio, and DVY is a core income holding in my Strategic Growth Allocation.
But what about European dividend payers? After two years of crisis, European stocks are cheaper than their American rivals, and they tend to pay out a higher percentage of their profits as dividends.Here, I believe investors have several viable choices. The first is the STOXX European Select Dividend ETF (NYSE: FDD). This ETF holds 30 of Europe’s highest yielders, offering a juicy 4.9% dividend (as of 3/6/13). Unfortunately, it is a little too heavily weighted in financials for my liking. Nearly 40% of the ETF is invested in banks and insurance companies; I’d prefer to see that number well below 20% given the current macro risks to Europe’s financial system. That said, one of FDD’s largest holdings is Spain’s Banco Santander (NYSE: SAN), which I own in my aggressive Sizemore Investment Letter portfolio. WisdomTree offers an ETF in this sector that offers high dividend yield but with zero exposure to the financial sector: the International Dividend ex-Financials ETF (NYSE: DOO). Though not technically a “Europe fund,” as it has exposure to Australia, Japan, and other developed markets, 70% of DOO is invested in European stocks. And for a high-yielding, dividend-focused ETF, the fund is surprisingly light in utilities. Utilities are only 14% of the portfolio as of early March, which I consider a positive. Utilities are slow-growth (and arguably no-growth) industries in much of the developed world. DOO sports a dividend yield of 4.0% (as of 3/6/13), which is , in my opinion, remarkable given its sector diversification. In an income-oriented portfolio, WisdomTree’s offering is not a bad choice.
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