While a stronger U.S. dollar has weighed on international investments, investors can still capture attractive oversea yields with currency-hedged exchange traded fund options.
According to Henderson Global Investors, investors generated $404.9 billion in dividends, down 6.7% year-over-year, due to the strong dollar, but the underlying dividends were up 8.99% year-over-year when excluding currency moves, special dividends and other factors, reports Judith Evans for the Financial Times.
“Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends,” Alex Crooke, head of global equity income at the asset manager, told FT. “A dividend-paying culture is extending into new markets, beyond those where paying an income to equity investors is already deeply entrenched.”
For instance, underlying dividend grow was 8.6% in Europe, aided by strong payouts from Italy, the Netherlands and Belgium. The previous quarter was a seasonal peak for European dividends.
Additionally, in Japan, dividends were up 16.8% on an underlying basis as payout ratios jumped and earnings growth increased. Japanese firms are also under rising pressure form the government and investors to raise dividends from their lows to reflect the greater profits.
Consequently, with underlying dividend yields on the rise across the globe, Crooke advises income investors to take a more global approach.
U.S. investors, though, may still be exposed to currency risks ahead, or a strengthening U.S. dollar and depreciating foreign currencies, which could weigh on overall USD-denominated returns of international investments. Nevertheless, there are a growing number of currency-hedged ETF strategies that help diminish the currency risks.
For example, the recently launched WisdomTree Europe Dividend Growth Fund (EUDG) focuses on dividend growing companies in Europe and hedges against a falling euro currency. The WisdomTree International Hedged Dividend Growth Fund (IHDG) targets dividend growers in developed markets, excluding the U.S. and Canada. EUDG shows a 4.82% distribution yield and IHDG has a 5.01% distribution yield. [Grab a Currency Hedge and Dividends With This ETF]
Deutsche Asset and Wealth Management recently launched four new high-dividend-yield, currency-hedged ETFs, including the Deutsche X-trackers MSCI EAFE High Dividend Yield Hedged Equity ETF (HDEF), Deutsche X-trackers MSCI Eurozone High Dividend Yield Hedged Equity ETF (HDEZ) , Deutsche X-trackers MSCI Emerging Markets High Dividend Yield Hedged Equity ETF (HDEE) and Deutsche X-trackers MSCI All World ex-US High Dividend Yield Hedged Equity ETF (HDAW) . [Alternative Income ETF Strategies for a Shifting Environment]
DeAWM’s international dividend ETFs provide attractive yields than most liquid asset classes – the high-dividend-yield indices select companies with dividend yields greater than or equal to 1.3 times the yield of the parent index. Additionally, the new funds also utilize forward currency contracts to diminish the negative effects of an appreciating U.S. dollar or weakening foreign currencies.
HDEF’s underlying index has a 4.9% dividend yield. HDEZ’s underlying index has a 4.7% dividend yield. HDEE’s underlying index has a 4.8% dividend yield. Lastly, HDAW’s underlying index has a 4.9% dividend yield.
For more information on dividend investments, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.