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Intriguing International Income Ideas

ETF Professor

International dividend payers offer some advantages. Those perks include, in many cases, higher dividend yields than their U.S. counterparts and the potential to trim some of the volatility associated with investing in ex-U.S. markets.

Happy First Anniversary

Two exchange-traded funds that are coming up on their first anniversaries help investors generate income with ex-U.S. developed markets equities. The Vanguard International Dividend Appreciation ETF (NASDAQ: VIGI) and the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) were the only new ETFs introduced by Pennsylvania-based Vanguard, the second-largest U.S. ETF issuer, last year.

VIGI And VYMI

VIGI and VYMI have some well-known relatives. VIGI is the international equivalent of the Vanguard Dividend Appreciation ETF (NYSE: VIG), the largest U.S. dividend ETF, while VYMI is the developed markets cousin to the Vanguard High Yield Dividend ETF (NYSE: VYM).

VIGI “emphasizes stocks exhibiting dividend growth and seeks to track the Nasdaq International Dividend Achievers Select Index, which comprises more than 200 all-cap developed and emerging markets stocks with a track record of increasing annual dividend payments,” according to Vanguard.

“Both these funds' underlying indexes share similar methodologies to those underpinning their U.S. cousins. VYMI, for example, is tied to the FTSE All-World Ex-US High Dividend Yield Index. The index uses the FTSE All-World Index as its starting point,” said Morningstar in a recent note.

VIGI is neither an ex-North America ETF nor does it exclude emerging markets. Canada is the ETF's largest country allocation at 16.6 percent while India, China and South Africa combine for 19.6 percent of the ETF's geographic weight. VIGI holds just over 300 stocks with a median market cap of nearly $43 billion.

VYMI does not exclude Canadian stocks either, though the country is much smaller in this ETF than in VIGI. The U.K. is VYMI's largest country exposure at 16.7 percent. This new high yield dividend ETF also features emerging markets exposure as 18 developing economies, at varying weights, are found among VYMI's geographic lineup.

“VYMI and VIGI are terrific options for investors looking for low-cost, diversified exposure to international dividend-paying stocks,” added Morningstar.

At the end of last year, VYMI and VIGI had $243.4 million and $244.2 million in assets under management, respectively, making each among the most successful ETFs to come to market in 2016.

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