Going Global for Dividends

We’re living in volatile world, as uncertainty continues to swirl around President Trump’s trade policy, and as we don’t know yet how Brexit will play out. Meanwhile, both Russia and China are bent on political and economic ascendency. The Greeks are even back in the news as the IMF now seems split on the wisdom of continuing to fund their bailout.

Come on folks, where’s the good news?

One place you wouldn’t expect to find good news is emerging markets, but the iShares MSCI Emerging Markets Index (NYSE: EEM) is up 7.3% year-to-date. Looking at how much money American investors sank into ETFs focused on U.S. stocks and foreign stocks last month, they were pretty evenly divided between the two after a U.S.-centric December. So why are investors increasingly bullish on supposedly riskier markets as opposed to U.S. stocks or bonds?

My theory is that there isn’t as much risk as one might think. President Trump has been forced to tone down some of his more controversial positions in the wake of public opposition. While that hasn’t changed much in terms of his trade policies, there’s a growing consensus that maybe bilateral trade treaties will be more beneficial for both parties than sweeping regional accords, such as NAFTA. And even British Prime Minister Theresa May has had to slow her roll on the Brexit, following a ruling from the UK’s high court that Parliament must vote to initiate the country’s EU exit.

Basically, what many feared might be a disorderly reordering of global economic relationships is starting to look less scary, and even thoughtful. As relationships are rethought, it now appears that the markets will have time to adapt accordingly, instead of getting ambushed. Considering that investors hate uncertainty, that’s good news.

If you’ve been holed up in U.S. stocks – or maybe even gold – this is a good opportunity to branch out into other parts of the world. A lot of global dividend ETFs are looking good right now, outperforming U.S. stocks but not having run up as much as emerging market funds.

A good example of that is iShares International Select Dividend (NYSE: IDV), which currently yields about 5%. It tends to invest in companies that offer decent value propositions and have a consistent history of paying reliable dividends. It also avoids emerging markets, with all its 100 or so holdings based in the developed world, including Asia. So you get the greater relative safety of a diversified portfolio based in lower-risk parts of the world, plus a decent yield to boot.

Despite all the uncertainty, 2017 is shaping up to be a good year to go international.

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