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With broader benchmarks sagging to start 2022, dividend stocks are proving their mettle as a variety of dividend-oriented exchange traded funds are holding up well compared to broader equity indexes.
That's welcome relief for clients, particularly those growing frustrated by slack performances by growth stocks and those needing more income in a climate of still low bond yields. Advisors should expect dividends to be in the spotlight again this year with payout growth providing some optimism for broader market performance.
Indeed, expectations are in place that S&P 500 dividends will hit a record in dollar terms for a second consecutive year. Obviously, that's good news for advisors and clients alike, but the phenomenon of rebounding dividend growth isn't confined to U.S. borders. Yes, international equities, broadly speaking, have frustrated clients for years now, but there are compelling payout opportunities outside the U.S.
Plus, many clients likely aren't aware of the facts that more than 40% of global equity market capitalization is outside the U.S. and 44% of global dividends hail from outside the Americas. In fact, there are compelling payout opportunities available today in not-so-volatile ex-US markets.
Getting Paid For International Investment Travel
As advisors know, dividend investing is a long-term game and with that in mind, it's vital to focus on companies with dividend growth track records and the resources to continue increasing payouts. What many clients don't know is that there are some storied dividend growth companies that are based outside the U.S.
The MSCI EAFE Dividend Masters Index is home to some of those firms. That index requires its components to have boosted payouts for at least 10 consecutive years, but many easily surpass that mandate.
“The MSCI Dividend Masters Index holds some of the world’s most generous dividend payers and those with the longest record of dividend growth,” according to ProShares research. “For example, Swiss-based Nestlé has paid dividends since 1959 and grown them every year since 1995, and it paid over 7.9B Swiss franc in cash distributions in fiscal year 2020. Similarly, French pharmaceutical company Sanofi has raised its dividends for 27 consecutive years.”
Owing to home country bias and the outright out-performance of U.S. stocks over international counterparts, some clients need motivation (and guidance) when it comes to ex-US stocks – even if dividends are involved. Good news: There are compelling reasons to consider international dividend payers in this environment.
“Investing in international dividend growth stocks is compelling and rests on three pillars: higher yields, a post-pandemic dividend resurgence and attractive valuations. Yield in the current low-rate environment generally remains scarce, especially among equity-based asset categories,” adds ProShares.
More Sources of Allure
There's more to the international dividend story. For example, payouts in markets outside the U.S. really suffered in 2020 at the hands of the coronavirus pandemic, indicating that's more room for percentage this year and beyond.
That trend started last year. Look at the chart below to see some of the massive percentage increases in dividends doled out in ex-US developed markets.
Courtesy: ProShares
“The final pillar of our case relates to performance trends. Years of U.S. stocks outperforming their global peers has led many to question holding international stocks,” notes ProShares. “But regional performance tends to be cyclical, as the chart below shows. A recovery among international economies in the wake of the pandemic could provide the catalyst to reverse recent relative performance trends.”
The point: Broadening dividend horizons could, well, pay dividends this year and beyond.