Investors looking for dividends will want to check out two freshly launched Vanguard funds that will focus on international dividend stocks.
But before we highlight these two new and compelling Vanguard funds, let’s cover the bases of why you might want to invest in any international funds that focus on dividends.
Often called foreign dividend funds or global dividend funds, these mutual funds and exchange-traded funds have gained popularity among dividend hunters because the conventional means of getting income aren’t quite doing the job. Traditional core bond funds are at risk from rising interest rates, and foreign equity yields are generally higher than government bond yields.
Another key attribute of international stocks that dividend hunters are seeking is value. In general, stocks overseas are cheaper than domestic stocks. The weighted average price-to-earnings ratio on foreign stocks, as measured by that of iShares MSCI EAFE Index Fund (ETF) (EFA), is about 15, whereas the P/E on the S&P 500 index is around 22.
In summary, dividend hunters looking to diversify can use good tools like one of these new Vanguard funds that focus on international dividend stocks.
Vanguard International High Dividend Yield Index (VIHIX)
Sporting a low expense ratio of just 0.4%, Vanguard International High Dividend Yield Index (VIHIX) holds approximately 800 stocks of international companies that are expected to have above-average dividend yields.
VIHIX is a passively managed fund that tracks the FTSE AW ex US High Dividend Yield Index, which is a cap-weighted index representing stocks of developed and emerging economies outside the U.S. The fund’s overall style is large-cap value and the average P/E is 15.5.
The minimum initial investment to buy VIHIX is $3,000. There is also an Admiral share class of this fund with a minimum initial investment of $10,000, as well as an ETF version, both with a lower expense ratio of 0.3%.
Vanguard International Dividend Appreciation (VIAIX)
Investors looking for a low-cost fund that offers exposure to international companies that are expected to grow their dividends over time will like what they see in Vanguard International Dividend Appreciation (VIAIX).
VIAIX seeks to track the NASDAQ International Dividend Achievers Index, which is a market-cap weighted index representing a little over 200 stocks of all market caps. The average market cap is large, and the style is a mix of growth and value. This makes for more of a growth bent than VIHIX, and it has a higher P/E of 21.
The expense ratio for VIAIX is attractively low at 0.35%, and the minimum initial investment is $3,000. For a higher minimum of $10,000, you can buy the Admiral share class of this fund, which has a lower expense ratio of 0.25%. There also is an ETF version of the fund with the same expense ratio as the Admiral share class.
Both of the new Vanguard funds are the first of their kind to be offered at the low-cost, no-load fund company, and they are some of the cheapest international stock funds that focus on dividends.
Investors should keep in mind that non-U.S. stocks tend to have more price volatility than domestic stocks. Therefore, these new Vanguard funds are best used as small parts of a broader portfolio — especially one that is intended to produce dividends.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.