For much of the past decade, investors have shown little interest in international dividend stocks. The market's preference for U.S. growth equities over that time put this group firmly out of favor.
But 2025 ushered in a remarkable turnaround. The Vanguard International High Dividend Yield ETF (VYMI +0.44%) returned 38%, more than doubling the 18% return of the Vanguard S&P 500 ETF. The rally hasn't ended either. It's beating the S&P 500 by a 12% to 10% margin year to date, as of May 14.
The case for international investing doesn't appear to be over either.
Image source: Getty Images.
Why the Vanguard International High Dividend Yield ETF works right now
Ultimately, share prices are driven by fundamental strength. The strong investor preference for U.S. stocks has certainly benefited their relative performance, but international markets have struggled with avoiding recession, high inflation, weak corporate earnings, and a stronger dollar.
Those trends are beginning to reverse. These factors are slowly beginning to turn into tailwinds.
- Valuations: International stocks almost always trade at lower multiples than U.S. stocks, but the current gap is especially wide. Vanguard International High Dividend Yield ETF's price-to-earnings (P/E) multiple of 14 is nearly half that of the Vanguard S&P 500 ETF's 27. That kind of discount provides a larger-than-average value opportunity if conditions continue to improve.
- Improving growth outlook: Developed foreign markets are still a mixed bag, but emerging markets are forecast to deliver around 4% gross domestic product (GDP) growth over the next couple of years. That's double the expected 2% growth of the United States. As global economies stabilize and earnings outlooks improve, international stocks have the potential to continue their momentum.
- De-dollarization: Whether it's reducing U.S. Treasury holdings, central banks hoarding gold, or altering global supply chains, there's been a worldwide push to lower reliance on the U.S. dollar. The greenback has remained relatively stable over the past year, but it's well below the levels it was at in the few years prior. International stocks get a tailwind from a weaker dollar, and that could help enhance returns.
Vanguard International High Dividend Yield ETF: Performance & key metrics
| Metric | VYMI |
|---|---|
| Expense ratio | 0.07% |
| Dividend yield | 3.4% |
| Price-to-earnings (P/E) ratio | 14.0 |
| Year-to-date return (2026) | 10% |
| 3-year average annual return | 21.7% |
| 5-year average annual return | 12.6% |
| Top sectors | Financials (42%), energy (9%), materials (7%) |
Data source: Vanguard.
The Vanguard International High Dividend Yield ETF carries with it the typical Vanguard expense ratio of just 0.07%. The 3.4% dividend yield is meaningfully higher than the 2.3% rate of the Vanguard High Dividend Yield ETF. Distributions are paid quarterly, so there is a relatively consistent income stream.
The big thing to note with this fund is the high concentration in financial stocks. Those typically come with higher yields, but they're also cyclically sensitive. If there's a scenario where the global economy slows and the demand for borrowed capital starts shrinking, these companies will likely be among the first to take the hit.
But there's an intriguing case for owning this fund and international stocks in general. Fundamentals are improving, growth is showing some signs of picking up, and there's been momentum building for about 18 months. The time could be coming soon for some of that value to get unlocked.
