Must-know: Why international dividend funds give you better value


Nov. 24 2019, Updated 11:41 p.m. ET

International dividend funds look cheaper than U.S. focused funds. While stocks offer better value than bonds, I would bring up exposure to international and global dividend funds rather than focus exclusively on U.S. dividend funds, which look more expensive. Reflecting this fact, dividend yields in the United States are low compared to the rest of the world. The S&P 500 (IVV) yields roughly 1.9% versus 3.3% for other developed market stocks (MSCI World ex-USA Index) based on World ex-US and 2.70% for emerging market equities (MSCI Emerging Markets Index) (EEM).

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Market Realist – The above graph shows the dividend yields given by the S&P 500 (SPY) over the last few years. Dividend yields were high at the time of the 2008 bubble. But they’ve dropped to less than 2% in the last few years. This is very low compared to developed market equities (VEA) and emerging market equities. Both are yielding 3% dividend returns, approximately.

The S&P Emerging Markets Dividend Opportunities Index—which provides exposure to high-yielding emerging market common stocks—gave one-year annual returns of 3.48% this year. Emerging market equities of countries like China (FXI), Brazil (EWZ), and India (EPI) are on the rise again this year. So emerging markets could prove to be a good investment—not just for dividend income but investment income as well.

Read on to the next part of this series to find out more about the investor outlook in the current low-dividend-yield scenario.


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