These days, an exchange-traded fund (ETF) covers nearly every corner of the equity markets. Of course, there are dividend ETFs and international ETFs, and then there are international dividend ETFs. This is a potent marriage, to be sure, because international stocks typically pay better dividends than their U.S. counterparts.
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Let's Examine An International Dividend ETF
We picked an international dividend ETF that doesn't get a lot of attention to see what some of its individual holdings might have in store for income investors. That ETF is the PowerShares International Dividend Achievers ETF (NYSE: PID). PID is laden with financial-services stocks, as that group accounts for more than 30% of the ETF's holdings. It offers geographic diversity with Chile, Russia and the U.K. all represented in the top 10 holdings.
PID has outperformed the S&P 500 by about 10% on a year-to-date basis. While the expense ratio is reasonable at 0.57, PID's yield isn't anything to write home about at 2.4%. With that, we found a few candidates among PID's top holdings that may be worth a look:
Mobile Telesystems (NYSE: MBT) - market cap: $20.3 billion; yield: 5.2%
National Grid (NYSE: NGG) - market cap: $26.2 billion; yield: 6.5%
Banco Santander (NYSE: STD) - market cap: $150.5 billion; yield: 4%
A Russian Dividend To Love
Russian stocks have been on fire in 2009, and Mobile Telesystems is no exception. Shares in Russia's most widely used mobile phone provider have more than doubled year to date. The company recently reported a 4.3% drop in third-quarter earnings, but that was better than the 11% drop analysts had expected.
The shares were recently upgraded to "buy" from "neutral" by UBS, and the company was removed from Standard & Poor's CreditWatch list, where it was placed with negative implications in April. The outlook is now stable.
Those are small positive catalysts, but the real allure, beyond the rapid potential gains offered by Russian equities, is the handsome yield on Mobile Telesystems shares of 5.2%, which is good for an annual payout of $2.71 a share.
Power Up With This Dividend Payer
If utilities are known for one thing beyond being boring stocks (usually), it is their noteworthy dividends. U.K.-based National Grid certainly fits the bill when it comes to sturdy payouts. Although the company is based in England, it does serve customers in New York and New England as well. The company has 11 million customers in its home country and 5 million here in the U.S. S&P said it believes National Grid's shares look attractive, and there is a chance for an 8% dividend hike. Even without an increase, the current yield of 6.5% is inviting.
Banking On A Familiar Name
Banco Santander is a name we've highlighted several times. It is Europe's biggest bank, and the stock is up more than 80% year to date. That's an impressive feat given that Spain's economic growth has lagged that of the Eurozone. Santander recently spun off part of its Brazilian unit in an IPO, raising $7 billion in the process, but the parent company still owns a big enough chunk that Brazil is a market worth watching with regard to Santander. It's the No.3 bank there and made about 20% of its profits for the first half of 2009 from Brazil.
Santander is more than just Europe and Brazil. The company's Sovereign Bank is in the U.S. as well, so it is well positioned for global profit growth. Santander recently said it is attracting deposits at twice the rate it is making loans, and that's a good sign. The 4% yield is nothing to sneeze at either.
Bottom Line: ETF Or Stocks?
If you can't afford to own all three of these stocks but you want the exposure, then the International Dividend Achievers ETF is your best bet. A strategy worth considering may be owning Mobile Telesystems individually and the ETF because MBT is a volatile stock with the potential for quick capital appreciation, and it only makes up about 2% of the ETF. Most of PID's holdings are fairly conservative, so the ETF can act as a hedge against MBT's wild price swings. (To learn more, see our Investopedia Special Feature: Exchange Traded Funds.)
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