Dividends: Get off the Couch, Go Global
Look outside the U.S. to capture all the benefits of dividend strategies.
Investing in dividend-paying stocks may seem like a dog-eared page from your grandparents’ playbook, but amid a slowing global economy and increased market volatility, it’s sensible to revisit a strategy that has proven to capture growth even in challenging times.
Dividends can help ease investor woes during market downturns by providing consistent income (a bird in the hand, after all). And let’s not forget that other age-old axiom about the power of compounding—dividends are a real driver of total return. Time doesn’t lie: historically, dividends have accounted for over 50% of the return of the S&P 500.1
If that sounds significant, consider that equity dividends outside the U.S. have done better, accounting for 70% of the total return of the MSCI ACWI ex-US Index since its inception.2 Tax treatment of dividends can be more favorable in certain countries abroad. Also, many companies ex-U.S. believe in giving capital back to shareholders, so the dividend-paying culture abroad has been quite strong. Average dividend yields clearly tell the story—more than double the U.S. in some regions (see Chart 1).
Generous but sturdy
So, it makes sense to consider a global dividend strategy that can invest in all geographies versus a U.S. dividend fund or a single dividend-paying stock. Beyond geography itself, going global for income helps diversify a portfolio as market sectors with attractive dividend yields are more varied relative to the U.S. (see Chart 2).
It’s about more than just income. Companies committed to paying robust dividends often have strong balance sheets to match, which helps stabilize their stock prices through bouts of volatility. Because they tend to be disciplined stewards of capital, dividend payers are more likely to provide a healthy return on investment and to increase dividends over time. But a warning: don’t just go chasing the highest yields. A fundamental, bottom-up analysis can identify those companies with not only the willingness to pay a healthy dividend but the ability to sustain it and grow it.
Get paid to wait
International indices’ returns have not been favorable relative to the S&P for years. However, investing a global dividend strategy with the flexibility to be selective in its investments can be an effective way to pinpoint opportunities that do exist overseas, all while collecting (or better yet—reinvesting) that welcome bonus of dividend income. After all, there’s nothing wrong with getting paid to wait for more attractive market conditions. How confident are we that the next 10 years in U.S. markets look the same as the last decade?
It has been said that “there’s no place like home,” but a homespun strategy of dividend investing paired with a global perspective can take advantage of a world of opportunities.