coffeekai
The WisdomTree International High Dividend Fund (NYSEARCA:DTH) provides a high distribution yield from a portfolio of international stocks. The ETF has had modest historical returns, driven by the underperformance of international markets vs. the U.S.
Compared to my current dividend pick, the Schwab U.S. Dividend Equity ETF (SCHD), the DTH has performed slightly better in 2022 and has a high current yield. However, the SCHD is superior in every other metric that I care about.
Until international markets outperform, I think the DTH should be kept on a watchlist and monitored.
Fund Overview
The WisdomTree International High Dividend Fund is an ETF that tracks the returns of an index of international companies (ex. U.S. and Canada) that pays high dividend yields. The fund has over $300 million in assets and charges a 0.58% expense ratio.
Strategy
The DTH fund tracks the performance of The WisdomTree International High Dividend Index (“Index”), a fundamentally weighted index that measures the performance of companies with high dividend yields outside of the U.S. and Canada. To qualify for the index, companies must have market cap of $200 million and average daily trading volumes of $200,000. Qualifying companies are then ranked by dividend yield and the top 30% are selected for inclusion. The companies are weighted by their annual cash dividends paid.
Portfolio Holdings
Figure 1 shows the characteristics of the DTH portfolio. 79% of the fund is invested in large-cap companies and 16% is invested in mid-caps. The average dividend yield of the portfolio is 6.3% with average P/E of 7.5x.
Figure 1 – DTH portfolio characteristics (wisdomtree.com)
Figure 2 shows the fund’s top 10 holdings, which account for 24.6% of the fund’s assets. The DTH fund tends to hold international business giants such as BHP Group, and Novartis.
Figure 2 – DTH top 10 holdings (wisdomtree.com)
Given the fund’s focus on high dividend yield, the fund’s holdings skew towards defensive and value sectors such as financials (25.3%), materials (16.2%), utilities (9.0%), and energy (8.3%) (Figure 3).
Figure 3 – DTH sector allocation (wisdomtree.com)
DTH is characterized as a large-cap value fund by Morningstar (Figure 4).
Figure 4 – DTH investment style (morningstar.com)
Returns
The DTH ETF has generated very modest returns in the long run, with 3/5/10/15Yr average annual returns of -0.4%/0.4%/3.5%/0.7% to December 31, 2022 (Figure 5).
Figure 5 – DTH historical average annual returns (morningstar.com)
This compares poorly to the SPDR S&P 500 ETF Trust (SPY), which returned 7.6%/9.4%/12.5%/8.7% on the same timeframes. However, comparing to the Vanguard FTSE All-World ex-US ETF (VEU), DTH’s modest results are not out of the ordinary, as international stocks have massively underperformed the U.S. markets for the past decade.
The VEU returned 0.6%/1.3%/4.1%/1.9% on 3/5/10/15Yr timeframes, broadly similar to the DTH (Figure 6).
Figure 6 – VEU historical returns (morningstar.com)
Distribution & Yield
As designed, the DTH ETF pays a high distribution of $2.04 / share in the past twelve months or a trailing 5.6% yield (Figure 7). DTH’s distribution is paid quarterly and the most recent distribution of $0.28 / share was paid on December 29, 2022.
Figure 7 – DTH distribution (Seeking Alpha)
High Yield But Modest Historical Returns
Although the DTH ETF pays a high distribution yield, it has only generated modest historical average total returns. The primary reason is because international equities have underperformed U.S. equities in the past decade (Figure 8).
Figure 8 – S&P 500 vs. MSCI World Index (Author created with price chart from stockcharts.com)
There are a number of drivers for this long underperformance. First, international regions such as Europe and Japan have structurally lower growth rates than the U.S. due to demographics. Second, style-wise, the past decade was led by strong performance from growth companies, which has benefited U.S. markets with larger exposure to growth stocks. Finally, on an individual stock-level, the past decade was led by dominant U.S. companies like Apple and Microsoft. Global markets do not have similar market champions.
Looking forward, international equities and the DTH may be attractive if the primary drivers go into reverse. For example, if we look at figure 8, in the early 2000s, international markets outperformed the U.S., driven by China’s ascension into the WTO. If a similar scenario were to occur, for example, if India becomes the next global growth engine, then DTH’s exposure to international materials and value stocks may allow the fund to outperform.
I would monitor the ratio between the S&P 500 and the MSCI World Index for signs that international equities will outperform.
DTH vs. SCHD
Currently, my favourite high dividend fund is the Schwab U.S. Dividend Equity ETF. I have written numerous articles on the SCHD, comparing its performance versus other dividend funds. So far, I have yet to find a fund that beats the SCHD on a composite scoring methodology, weighing returns, risk, and the distribution. Comparing the DTH ETF against SCHD, the conclusion is the same (Figure 9).
Figure 9 – DTH vs. SCHD (Author created with returns and risk metrics from Portfolio Visualizer and fund and distribution details from Seeking Alpha)
DTH is superior in terms of short-term returns current yield. However, the SCHD is better in almost every other category. SCHD is a fraction of the cost of the DTH; it has superior long-term historical returns; it has lower volatility and superior Sharpe ratios; and it has been growing distributions at a faster pace.
Conclusion
The DTH provides a high distribution yield from a portfolio of international stocks. The ETF has had modest historical returns, driven by the underperformance of international markets vs. the U.S.
Compared to my current dividend pick, the SCHD ETF, the DTH has performed slightly better in 2022 and has a high current yield. However, the SCHD is superior in every other metric that I look at.
Be the first to comment