The search for income has many investors looking for yield outside of the confines of the typical stocks and ETFs you find here at home. After all, if you look overseas, you’ll find a broad universe of potentially undervalued stocks with attractive fundamentals in place.
One of the overriding factors that can’t be ignored in the current market environment is the differences in recovery between the United States and other foreign markets. Europe and Japan are still aggressively fighting deflation with quantitative easing efforts, while the U.S. looks to transition to a tighter-interest-rate environment.
We already have seen a changing of the guard in stock index leadership so far this year. Developed- and emerging-market nations have far outpaced U.S. stocks given falling yields on sovereign debt, as well as current currency trends.
The following three ETFs are among some of the best ways to maximize income, and they might have even farther to run.
Dividend ETFs: SPDR S&P International Dividend (ETF) (DWX)
Dividend Yield: 5.7%
If you are considering a broad-based international dividend ETF for your portfolio, the SPDR S&P International Dividend (ETF) (NYSEARCA:DWX) should be on your radar.
The DWX tracks 120 high-yield dividend stocks with market capitalizations in excess of $1 billion. 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 three years. DWX currently has $1.46 billion in total assets under management.
One of the attractive qualities of this ETF is the 30-day SEC yield, which is listed at 5.7%. By contrast, many U.S.-based equity income funds such as the iShares Select Dividend ETF (NYSEARCA:DVY) yield closer to 3%. That represents a pickup in yield of roughly 90% 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 — such as Canadian Oil Sands Limited (OTCMKTS:COSWF) and Baytex Energy Corp USA (NYSE:BTE). 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.
Also of note: Emerging-market exposure in DWX is limited to just 15% of the total portfolio.
Dividend ETFs: Cambria Foreign Shareholder Yield ETF (FYLD)
Dividend Yield: 4.8%
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 (NYSEARCA:FYLD) is a dividend ETF 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 is a small fund, though, with just more than $55 million in AUM.
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 toward financial, industrial and consumer discretionary stocks, with top holdings including Aviva Plc (ADR) (NYSE:AV), Metro, Inc. (OTCMKTS:MTRAF) and Tower Ltd. 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.
Dividend ETFs: Global X SuperDividend ETF (SDIV)
Dividend Yield: 6.1%
While not strictly an international play, the Global X SuperDividend ETF (NYSEARCA:SDIV) takes a unique multi-asset approach to its index construction. This worldwide fund has more than $1 billion in total assets dedicated to 114 REITs, MLPs and traditional dividend stocks. In fact, this ETF touts the ability to select some the highest-yielding securities in the world.
The United States makes up just 30% of the holdings, while other top foreign countries include Australia, United Kingdom and Singapore. Top holdings include Evergrande Real Estate, Surge Energy Inc (OTCMKTS:ZPTAF) and First Bank of Nigeria.
The addition of unconventional high-dividend assets boosts the total 30-day SEC yield on SDIV to 6.28%. The income from this ETF is paid on a monthly basis as well, which may be an attractive quality for those seeking a steady stream of dividends. It’s also worth pointing out that the additional REIT and utility exposure in SDIV may lead to greater correlation with interest rates for a portion of the portfolio.
SDIV has been on a steady rebound over the course of 2015, and additional strengthening in overseas markets may help boost this ETF back near its 2014 highs.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. To get more investor insights from FMD Capital, visit their blog.