Buckle Up for a Bumpy Ride With Foreign Dividend ETFs

Investors know that dividends are a key component of long-term returns. Indeed, more than half of the real return provided by U.S. stocks in the past century came from dividends. In the international developed markets more companies pay dividends and their yields are higher than U.S. companies'. As a result, foreign large-blend exchange-traded funds and foreign dividend ETFs each have yield premiums of about 100 basis points relative to their U.S. counterparts.In addition, because dividends are more common across foreign equities, foreign dividend funds tend to be better diversified across sectors. However, while dividends tend to suggest safety, we highlight that there are some risks that are specific to international dividend funds that do not exist for domestic dividend funds.Greater Short-Term VolatilityIn the past 15 years, a dividend-focused strategy produced better risk-adjusted returns than a market cap-weighted strategy in the World, EAFE, Europe, and... Read more