This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Income Investors Get More Bang From Overseas Dividend ETFs Than U.S.

NEW YORK (Fabian Capital Management) -- Equity income investors are running into a key problem when constructing a diversified portfolio of dividend-paying stocks. Prices have risen to a point where the major domestic dividend indexes are now yielding a meager 3%.

The iShares Select Dividend ETF (DVY) and Vanguard High Yield Dividend ETF (VYM) are both constructed of high-quality companies that are characterized by their above-average dividend yields. However, both of these widely-owned exchange-traded funds have now seen their annual yields fall close to 3% and are in danger of slipping even farther.

While the last several years of growth have been exceptional for these ETFs and their underlying stocks, the pace of dividend growth has not been able to keep up with stock price gains. With many retirees and other conservative investors relying on their portfolio to generate a healthy income stream, a focus solely on domestic stocks leaves a lot to be desired.

One option is to diversify your portfolio with high-yield asset classes such as real estate investment trusts, preferred stocks, master limited partnerships and junk bonds. While that makes perfect sense in the context of a multi-asset solution, many of those areas are going to be subject to unique risks such as interest rate direction and credit concerns.

Fortunately, there are a number of overseas dividend options that may provide both better yield and a more attractive valuation proposition than domestic equities.

One ETF that has been a core holding in my clients' income portfolios for some time now is the iShares International Select Dividend ETF (IDV). This ETF is made up of 100 stocks of foreign developed companies primarily centered around Europe with a modest allocation to Australia as well. The current distribution yield on IDV is 4.28% and dividends are paid on a quarterly basis.

Another developed international ETF to consider for equity income is the First Trust STOXX European Select Dividend Index Fund (FDD). This ETF selects just 30 companies from the STOXX Europe 600 Index according to their dividend history and other fundamental metrics. Companies are then dividend weighted within the ETF, which produces a current yield of 3.91%. In addition, the listed Price/Earnings ratio of FDD is 12.27 as of 4/30/14, while DVY has a relatively expensive P/E of 19.32.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,122.01 +15.31 0.09%
S&P 500 2,000.12 +0.10 0.00%
NASDAQ 4,569.6210 -1.0160 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs