3 Dividend Funds With Foreign Flair

Key Concepts

• Equity Income: Income generated from stocks, typically through dividends.
• Dividend Yield: The annual dividend payment per share divided by the stock's price, expressed as a percentage.
• Domestic Dividend Fund: A fund that invests primarily in dividend-paying stocks within the investor's home country (in this case, the US).
• Foreign Stocks: Stocks of companies based outside the investor's home country.
• Double Taxation: The situation where income is taxed twice, once in the country where it's earned and again in the investor's home country.
• Tax Agreements: Treaties between countries that can reduce or eliminate double taxation.
• US Foreign Tax Credit: A credit that allows US taxpayers to reduce their US tax liability by the amount of income taxes they've paid to foreign governments.
• Index Fund: A type of mutual fund or ETF that aims to track the performance of a specific market index.
• Diversification: Spreading investments across various assets to reduce risk.
• Annualized Return: The average annual rate of return over a specific period.
• Morningstar Category: A classification system used by Morningstar to group similar investment funds.
• Small Cap Value: A segment of the stock market that includes smaller companies whose stock prices are considered undervalued relative to their fundamentals.
• Mid-Cap Value: Similar to small cap value, but for medium-sized companies.
• S&P 500: A stock market index that represents the performance of 500 of the largest publicly traded companies in the United States.
• Specialty Funds: Funds that focus on a particular niche or sector of the market.
• Listed Infrastructure: Companies that own and operate physical assets that provide essential services, such as utilities, transportation, and energy.
• Utilities Sector: Companies that provide essential services like electricity, gas, and water.
• Industrials Sector: Companies involved in manufacturing, construction, and transportation.

Weak Domestic Dividend Yields and the Opportunity Abroad

Todd Trouy, a senior manager research analyst at Morningstar, addresses US investors who may be finding their domestic dividend funds yielding less than expected. He notes that while equity income as a group recently had a 2.1% yield, this is only slightly lower than their long-term average of 2.3%. However, he argues that 2.3% is "just not that good" in terms of income generation.

Trouy presents a solution for investors seeking higher equity income: looking abroad. He highlights that non-US stocks often pay higher dividends. He also provides a cautionary note regarding international dividends, mentioning the potential for double taxation abroad and at home. However, he explains that tax agreements and the US foreign tax credit often mitigate this issue.

Recommended Silver-Rated International Dividend Funds

Trouy then proceeds to highlight three silver-rated funds that offer good yields from foreign stocks:

1. Vanguard International High Dividend Yield Index ETF (VMI)

   • Yield: Recently had a yield of 4.2%.
   • Fund Type: Index fund from Vanguard.
   • Characteristics: Described as "quite cheap" and "well diversified," recently holding over 1650 stocks.
   • Performance: Its since-inception annualized return through July 2025 was 9.5%, ranking "just outside the top quartile" in its foreign large value Morningstar category.

2. DFA International Small Cap Value (DISVX)

   • Yield: Recently had a 12-month yield of 3.7%.
   • Fund Type: Broadly diversified foreign equity fund with low fees.
   • Characteristics: Positioned as "a bit more off the beaten path" in the small and mid-cap value universe, offering potential for greater portfolio diversification.
   • Performance & Market Context: While international small caps have lagged over the past decade, DISVX showed strong performance in the first seven months of 2025, jumping 28.1% compared to the S&P 500's 8.6% gain.

3. Lazard Global Listed Infrastructure (GFX)

   • Yield: Recently had a 12-month yield of 2.7%.
   • Fund Type: Specialty fund focusing on listed infrastructure.
   • Characteristics: Retains a "foreign flavor" but with a concentrated portfolio of approximately 30 stocks. It specifically targets sectors known for dividends.
   • Sector Allocation: Nearly 55% of the portfolio is held in utilities, with another 33% in industrials.
   • Performance: Its 10-year return of 9.5% was "tops in the infrastructure category" as of July 2025.

Conclusion

The core takeaway from Todd Trouy's analysis is that US investors seeking higher dividend income may find attractive opportunities by looking beyond domestic equity markets. International stocks, particularly those within diversified index funds or specialized sector funds like infrastructure, can offer superior yields. While potential tax implications exist, they are often mitigated by existing agreements and credits. The highlighted silver-rated funds—Vanguard International High Dividend Yield Index ETF (VMI), DFA International Small Cap Value (DISVX), and Lazard Global Listed Infrastructure (GFX)—represent specific examples of how investors can achieve this goal with varying risk and diversification profiles.