David Fabian: The search for income has many investors looking for yield outside of the confines of the typical ETFs you find here at home. After all, there is a broad universe of potentially undervalued securities in many overseas countries along with attractive fundamentals in place to drive prices higher.
One of the overriding factors that can’t be ignored in the current market environment is the differences in recovery between the U.S. and other foreign markets. Europe and Japan are still aggressively fighting deflation with quantitative easing efforts, while the United States looks to transition to a tighter interest rate environment.
We have already seen a changing of the guard in stock index leadership so far this year. Developed and emerging market nations have far outpaced the gains in U.S. stocks given the falling sovereign yields and accommodative currency trends.
The following ETFs represent equity income plays that may have farther to run on the upside along with favorable yield enhancement qualities for your portfolio.
SPDR S&P International Dividend ETF (DWX)
If you are considering a broad-based international dividend ETF for your portfolio, the SPDR S&P International Dividend ETF (DWX) should be on your radar. This fund tracks 120 high dividend paying stocks with market capitalizations in excess of $1 billion. In order to be admitted into this index, companies must meet stringent liquidity and long-term profitability requirements as measured by positive earnings per share over the last 3 years. DWX currently has $1.46 billion in total assets under management and charges an expense ratio of 0.45%.
One of the attractive qualities of this ETF is the 30-day SEC yield, which is listed at 5.65%. By contrast, many U.S.-based equity income funds such as the iShares Select Dividend ETF (DVY) yield closer to 3%. That represents a pickup in yield of more than 50% above a strict domestic stock equivalent. Of course, that higher yield should be considered a premium for the higher associated risk of foreign stock volatility.
The top country weightings in DWX are Canada, United Kingdom, and Australia. This ETF is also quite heavily weighted toward energy stocks, which provided somewhat of a drag in the second half of 2014. Nevertheless, this ETF may be ripe for additional upside if oil prices continue their rising trajectory alongside a dip in the U.S. dollar index.
It should also be noted that emerging market exposure in DWX is limited to just 15% of the total portfolio.
Cambria Foreign Shareholder Yield ETF (FYLD)
Most income investors focus the majority of their attention on the actual dividends that are produced by their stocks and bonds. Nevertheless, a broader approach to total shareholder yield would incorporate share buybacks and debt repayment as additional quality factors.
The Cambria Foreign Shareholder Yield ETF (FYLD) is an equity income fund designed to capture companies with sustainable yields and positive net stock buybacks. This ETF owns a diversified portfolio of 100 companies with classic value characteristics and strong cash flows. FYLD currently has over $55 million in total assets and charges an expense ratio of 0.59%.
Based on the trailing 12-month quarterly dividends and the current share price, FYLD has a distribution yield of 4.82%. The most recent fact sheet shows that FYLD is heavily skewed towards financial, industrial and consumer discretionary stocks. In addition, the underlying country exposure follows a similar pattern to DWX with the United Kingdom, Australia, and Canada ranking highest.
FYLD just recently broke out above its 200-day moving average which may be a positive sign of additional upside to come. Nevertheless, this ETF still has some serious catching up to do in order to regain its 2014 highs.