What Are International Dividend Stocks And ETFs?

As a refresher…

The Juice is spending much of the rest of 2024 looking at alternative investments. 

You can break alts into two categories: non-traditional, non-traded investments such as crypto and venture capital and alternatives within traditional categories. Things like alternative ETFs. You can find color alongside ideas in today’s Freshly Squeezed section.

All with an eye on 2025 when we will help you construct the ultimate long-term portfolio that blends traditional and alternative investments. There will be no one-size-fits all. Just a framework to give you ideas and help you build out what works for you. It will be relevant to a buy-and-hold strategy, but, make no mistake, it will be aggressive. 

With this backdrop in mind, part of excelling in the traditional portion of your long-term portfolio is knowing how to balance the moving parts. You have to have a solid and stable core, composed of broad market index funds, leading stocks and, probably, at least a handful of income producers. The Juice likes solid dividend growth stocks. 

From there, it’s easy to speculate and lose money. It’s also easy to get too cute. 

This said, if you want income and some international exposure, international dividend stocks can make sense. 

International dividend stocks are, as the name strongly implies, stocks of companies not based in the United States that make dividend payments to shareholders.

First thing’s first. The tax implications of investing in foreign dividend stocks. Consult the IRS or your tax advisor, but, in the shell of a nut, you will pay foreign governments on dividends paid to you by an international company. The rate varies by country. However, you can claim a foreign tax credit or deduction (the credit is usually better) to avoid being taxed a second time by the United States government. 

Again, talk to your accountant. But, in The Juice’s opinion, investing internationally is generally worth the slightly extra effort at tax time. 

As far as the types of stocks you should consider owning. We look to the WisdomTree International Quality Dividend Growth Fund (IQDG) for some representative examples.  

Obviously, owning international stocks individually or via an ETF diversifies you away from the domestic firms. In IQDG, the United Kingdom makes up 17.9% of the portfolio followed by Switzerland (14.7%), Japan (14.6%), Netherlands (9.6%), France (8.6%), Spain (7.9%), Australia (7.1%), Germany (4.8%), Demark (4.2%) and Sweden (3.9%). 

Maybe not as obviously, you diversify away from technology. Consumer discretionary and consumer staples stocks make up about 29% of IQDG. Healthcare (19.9%) industrials (18.3%) and, then, information technology (11.3%) all have 10%-plus allocations.  

The top ten holdings in IQDG are:

• Industria de Diseno Textil 5.60%
• LVMH Moet Hennessy Louis Vuitton SE 4.12%
• Novartis AG 3.67%
• Astrazeneca Plc 3.64%
• Roche Holding AG 3.61%
• ASML Holding NV 3.46%
• Novo Nordisk A/S-B 2.81%
• Deutsche Post Ag-Reg 2.68%
• UBS Group AG 2.47%
• Imperial Brands PLC 2.24%

Not a bad lineup if you’re seeking some international diversification. 

The most-searched broad international index ETF in our Trackstar database (that doesn’t focus on only Asian or emerging market stocks, which we will cover in a separate installment) is the Vanguard Total World Stock ETF (VT). 

 This can be a better alternative to a pure international ETF for two reasons.

• VT is a “world” stock fund so about 66% of its holdings come from North America. So many of the usual suspects populate the top ten. For example, Apple (AAPL), Nvidia (NVDA) and Microsoft (MSFT) are the top three holdings. From there, you get international exposure focused on emerging markets and Europe with names such as Nestle, SAP, Novartis, Roche and let’s not forget, from north of the border, Royal Bank of Canada. 
• Typical of Vanguard funds, VT’s expense ratio is an ultra-low 0.07% compared to a hefty 0.42% in the Wisdom Tree ETF. 

To dip your toes in international waters, we would start with VT. 

Definitely. As long as you don’t mind additional exposure to American market behemoths. And, of course, many of the stocks in VT pay dividends (we didn’t forget about those!). So, even though it’s not a dividend ETF by name, it still pays a quarterly distribution with the most recent one being roughly $0.42 per share. 

Before the end of the month, we’ll tell you which pure international fund we like more than IQDG. It will be a solid mix for growth and income investors. 

The Bottom Line: Sometimes having too many options can be a bad thing. This is why The Juice is here to help you make sense of things. 

Breaking things down to smaller parts helps. Broadly, traditional and alternative. Within the first category, we have established broad market index funds, tech stocks, dividend stocks and some international dividend payers as the bite size pieces of the bigger puzzle. 

As we steamroll towards 2025, we’ll continue baking both the traditional and alternative investment pies. So forward this email to a friend and kindly instruct them to subscribe to The Juice for free!

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