What to invest in now -- that may seem like a tough decision, given the current economic uncertainty in the U.S. including ongoing tariff-related concerns. Investors are worried about inflation, about stock market declines, and even a potential recession.
Let's say you have $1,000 to invest right now. The Vanguard International Dividend Appreciation ETF (VIGI +1.52%) is a strong option to consider investing in with that amount -- or any other amount. (Remember that an exchange-traded fund (ETF) is a fund that trades like a stock.)
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Dividend appreciation
First off, the "dividend appreciation" in the title likely refers to the fund's goal of focusing on stocks that not only pay dividends, but that pay growing (i.e., appreciating) dividends. But let's take a moment to simply appreciate dividends.
Per S&P Global:
Numerous academic studies have shown that dividend-paying stocks have historically outperformed non-dividend payers. However, much of the available dividend research focuses on the U.S. and other developed markets. A study published by Morgan Stanley Research showed that there is a strong relationship between dividend yield and total return in developed and emerging markets, with this link being the strongest in emerging markets.
And per Dan Lefkovitz at Morningstar in February:
Both the Morningstar Global Markets ex-US High Dividend Yield Index and the Morningstar Global ex-US Dividend Growth Index have outperformed the broad market for developed- and emerging-markets stocks outside the US. Whereas their US counterparts have failed to keep up, the international dividend benchmarks have been on top for the past five years.
This is great news for anyone worried about the U.S. market and looking into deploying dollars abroad.
Note that one reason dividend payers outperform is that they have generally grown to a meaningful size and are generating fairly reliable income before they commit to paying a dividend.
Meet the Vanguard International Dividend Appreciation ETF
The ETF "seeks to track the performance of the S&P Global Ex-U.S. Dividend Growers Index." Its primary focus is on large-cap stocks from both developed and emerging markets that have been hiking their dividend payouts regularly. It excludes U.S. stocks, so any portion of your portfolio that you devote to this ETF will fully expose you to foreign companies.
How has the fund performed over time? Well, as of this writing, it's up 4.5% year to date, and up 5.57% over the past year. Its three-year and five-year average annual returns are 4.18% and 7.83%, respectively.
The ETF's expense ratio (annual fee) is a very modest 0.1, meaning that you'll pay $10 annually per $10,000 you have invested in it. (Vanguard is known for ultra-low fees.)
The Vanguard International Dividend Appreciation ETF recently held about 327 stocks, with between 16% and 20% of its assets in healthcare, industrial, and technology stocks. Nearly half of its assets were recently in European companies, with 30% in Pacific companies, close to 9% in emerging markets, and 12.6% in North America -- excluding the U.S., of course.
Here are its recent top holdings:
|
Stock |
Percent of ETF |
|---|---|
|
SAP SE |
5.85% |
|
Roche Holding AG |
4.56% |
|
Novartis AG |
3.85% |
|
Nestle |
3.16% |
|
Sony Group |
3.13% |
Data source: Vanguard.com, as of Jan. 31, 2025.
So what's this Vanguard ETF's dividend yield? Well, it's 1.85%. That's not huge, but it's not paltry, either. It's actually well above the S&P 500's recent yield of 1.23%. Better still, it's designed to grow. The S&P 500, for example, encompasses dividend payers and non-payers, and payers that are growing their payouts regularly along with those that are increasing their dividends minimally or not at all.
So give this fund some consideration -- especially if you're worried about the state of the U.S. economy and/or you think that companies based outside the U.S. have a lot to offer.
