While the “Magnificent Seven” soar, the humble dividend stock has languished in relative obscurity. The S&P 500 has nearly doubled over five years, leaving the Dow Jones US Select Dividend Index — up less than 50% — in the dust. (For the risk-hungry, the “Magnificent Seven” tech stocks delivered a staggering 70% return in 2023 alone.)
Cross the Atlantic, however, and the narrative shifts dramatically. Overseas, dividend stocks still command respect. According to Morningstar, high-yielding dividend stocks across developed and emerging markets have comfortably outpaced their broader indices over five years — a stark contrast to America’s growth-obsessed markets.
This trans-oceanic divergence raises an intriguing prospect: International dividend stocks may offer that increasingly rare trifecta of yield, growth potential, and stability that is becoming more and more elusive on U.S. shores.
The Case for International Dividends
Stubborn inflation continues to wrong-foot policymakers across the globe. Despite retreating from 2023’s peaks, it remains uncomfortably above central bank targets — 3.26% in America and 2.7% across the Channel in Europe. And the looming spectre of trade protectionism and fragile supply chains threatens to reignite price pressures.
This inflationary backdrop has rendered traditional fixed-income deceptively unrewarding. A 5% bond yield appears handsome until inflation’s corrosive effect leaves real returns perilously close to zero. Dividend stocks, on the other hand, typically outstrip inflation across developed markets, preserving purchasing power where bonds cannot.
Meanwhile, the mathematics of valuation works increasingly against growth stocks. Higher inflation and interest rates mean steeper discount rates, eroding the present value of distant earnings promises — the very foundation upon which growth stock valuations rest. Dividend payers, by contrast, offer immediate income and more sensible valuations.
The defensive qualities of dividends become particularly compelling when markets turn south. Global growth stocks trade at a lofty 30 times earnings, while their dividend-paying counterparts sit at a more grounded 15 times. Add stronger balance sheets, steadier earnings streams, and greater institutional backing, dividends look even more attractive.
New ETFs Offer Unique Exposure
There’s no shortage of ETFs offering exposure to international dividend stocks — and the universe continues to expand into 2025 with unique strategies.
In January, Franklin Templeton launched the International Dividend Multiplier Index ETF (XIDV) based on the VettaFi New Frontier International Dividend Select Index. As of January 21, 2025, the underlying index delivered an attractive 7.5% yield, making it a compelling option for income investors willing to look outside of the U.S. markets.
Unlike other funds that simply screen for high-yield stocks, the ETF aims to deliver “excess” yield while mitigating volatility and concentration risk. The managers simulate thousands of portfolios to find excess dividend forecast yield, enforce diversification constraints on the results, and then add turnover constraints to balance optimization with efficiency.
At the same time, the fund’s holdings come at a much fairer price than U.S.-based dividend stocks. The portfolio has a forward price-earnings ratio of just 9.49x and price-book ratio of 1.27x with a weighted average market cap of about $33 billion. That’s much cheaper than the Schwab US Dividend Equity ETF’s (SCHD) 14x P/E and 3x P/B ratios.
Other International Dividend ETFs
These funds are sorted by their YTD total return, which ranges from 4.5% to 9%. They have AUM between $413M and $8.4B, with expenses running between 0.1% and 0.61%. They are currently yielding between 1.3% and 5.3%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Dimensional International Value ETF | DFIV | ETF | Yes | $7.97B | 9% | 3.6% | 0.27% |
| BlackRock International Dividend ETF | BIDD | ETF | Yes | $744M | 6.7% | 1.7% | 0.61% |
| Vanguard International High Dividend Yield Index Fund | VYMI | ETF | No | $8.4B | 6.6% | 5.3% | 0.17% |
| Schwab International Dividend Equity ETF | SCHY | ETF | No | $782M | 5.4% | 4.8% | 0.14% |
| SPDR ® S&P ® International Dividend ETF | DWX | ETF | No | $413M | 5.3% | 2.9% | 0.45% |
| Vanguard International Dividend Appreciation Index Fund | VIGI | ETF | No | $7.62B | 4.5% | 1.3% | 0.10% |
Many international dividend ETFs offer a unique approach to the market, and the best choice depends on your investment goals. Quality-focused investors may want to consider the Schwab International Dividend Equity ETF (SCHY), while value investors might want the Vanguard International High Dividend Yield ETF (VYMI).
In addition to passively managed ETFs, several active ETFs offer exposure to international dividends. For example, BIDD holds a portfolio of 38 dividend-paying companies and pays a 1.7% 12-month yield. However, the value-focused DFIV also offers an even more attractive 3.57% 12-month yield.
Actively managed funds have more flexibility to adjust their portfolios in ways that extend beyond market capitalization. For instance, the DFIV’s value tilt could help insulate any drop in global stock markets relative to growth stocks while still providing an attractive yield.
The Bottom Line
International dividend stocks offer a compelling opportunity in today’s market. While U.S. dividend stocks have struggled to match the returns of growth stocks, their international peers have outperformed broader indices while providing attractive yields, reasonable valuations, and robust defensive characteristics.
With today’s persistent inflation and elevated market valuations, these investments provide both income security and potential appreciation with less downside risk.
