ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

Follow us on

    Last 14 days

Most Popular Articles


Most Popular Commentaries

    Last 12 Months

Most Popular Articles


Most Popular Commentaries



More by the Same Author

Equities
   International
   Value
Fixed Income
   Treasuries
Global Markets
   Asia
   Europe
Investment Strategies
   General
Investments
   Investments
Market Insights
   Emerging Markets
   Fixed Income
Specialty
   Dividend Stocks
Specialty Investments
   Bear Market

5 Reasons Not to Flee Non-US Dividend Stocks

June 12th, 2013

by Russ Koesterich

of iShares Blog

“Is it time to flee dividend stocks?” That’s what many investors are asking me amid the recent rise in bond yields.

My answer: Don’t abandon dividend stocks but be selective. I’ve long been advocating that investors searching for yield should look abroad for dividend income, and I continue to stand by that call. Here are five reasons why:

  1. Over the long term, dividend paying stocks tend to outperform in both bull and bear markets, according to BlackRock research.
  2. International dividend income still looks good compared to the alternatives. Even with the recent increase in bond yields, non-US dividend companies still offer more enticing yields than fixed income and US dividend counterparts. International dividend equities are currently offering 12-month yields of around 3.0% to 4.0% — higher yields than both US dividend payers and many fixed income instruments.
  3. The stocks are likely to continue to pay higher yields for the foreseeable future. While I believe the 10-year Treasury yield will slowly rise to about 2.25% this year, I’m not expecting a large increase in bond yields anytime soon as factors keeping a lid on rates – such as central bank buying of Treasuries and demand for Treasuries from institutional buyers – are still in place. In other words, in what is likely to remain a low-rate environment, I believe a broad-international dividend fund is still likely to offer a competitive yield.
  4. The stocks look cheaper than their US counterparts. Valuations of international dividend stocks are still very low compared with those of dividend-oriented US equities. For example, the average price-to-book ratio on the Dow Jones EPAC Select Dividend Index – primarily composed of companies domiciled in Europe and Asia — is roughly 1.70, while the ratio is 2.25 for the Dow Jones Select Dividend Index, which is composed of US companies.
  5. Non-US dividend funds offer international diversification. Non-US dividend funds such as the iShares Dow Jones International Select Dividend Index Fund (IDV) and the iShares Emerging Markets Dividend Index Fund (DVYE) are well diversified by both geography and sector and thus, can be good, broad instruments for gaining non-US international and emerging market exposure.

In short, there’s still a strong case for why investors in search of equity income should consider international dividend paying stocks.

Sources: Bloomberg, BlackRock

The author is long IDV and DVYE

There is no guarantee that dividends will be paid. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

© iSharesBlog

www.isharesblog.com

Website by the Boston Web Company