There’s a dividend resurgence brewing in 2021, but that trend isn’t confined to domestic stocks. After paring or suspending payouts following the onset of the coronavirus pandemic, plenty of international companies are looking to restore and grow their payouts.
Source: A Case for International Dividend Investing with Nasdaq, Vanguard
That could bring the Vanguard International Dividend Appreciation ETF (NasdaqGM: VIGI) into focus. VIGI tracks the NASDAQ International Dividend Achievers Select Index. The fund is an international offshoot of the beloved Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest domestic dividend exchange traded fund by assets.
Beyond the obvious difference in geography, the primary difference between the two funds is that VIG’s components must have a minimum dividend increase of 10 years while VIGI components are required to have payout hike streaks of seven years. Those mandates are important because some ex-U.S. markets are coming off stretches of dividend duress.
“After a very bad year in 2020 which saw record declines in European dividends, we are encouraged to see them coming back quickly and strongly,” according to Janus Henderson research.
Nearly 40% of VIGI’s 292 holdings are European companies, a positioned bolstered by a 16.3% weight to Switzerland – one of the steadiest dividend destinations in Europe. Thanks to annual payments by pharmaceuticals giants Roche and Novartis, VIGI’s second- and third-largest holdings, respectively, Switzerland was the third-largest global dividend payer in the first quarter behind the U.S. and the U.K, according to Janus Henderson.
More Than European Power to ‘VIGI’
European dividends are bouncing back and that could prove useful for VIGI in the back half of 2021, but the fund is driven by more than just Europe. The developed Asia-Pacific region, including Japan and Australia, are contributors to the VIGI story too.
Japanese companies have some of the strongest balance sheets in the world, and after years of being tight-fisted with their cash, firms in the world’s third-largest economy have increasingly embraced shareholder rewards such as buybacks and dividends. In Australia, payouts are on firmer footing thanks to soaring commodities prices, which are supporting payout hikes among mining companies.
“We expect to see more big payouts from miners in the coming months, providing a significant boost to the Australian dividend total,” added Janus Henderson.
Japan and Australia combine for 18.3% of VIGI’s geographic weight, Original Postortfolio/vigi" target="_blank" rel="noreferrer noopener">according to Vanguard data.
All in all, VIGI is not a dedicated developed markets fund. It allocates almost 26% of its weight to emerging markets stocks. Positive first-quarter action in developing economies was largely led by Brazil, India, and Malaysia, according to Janus Henderson. India is VIGI’s third-largest country exposure at 12%.
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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.