Vanguard International Dividend Appreciation ETF: Dividend Play For A Low-Yield, Low-Growth Environment – Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI)

Do you know the only thing that gives me pleasure? It is to see my dividends coming in.

– John D. Rockefeller

While risk-off signals were tripped to get out of stocks January 27 in The Lead-Lag Report and have stayed that way throughout this extraordinary period, we now find ourselves in a difficult juncture for asset allocators. Given the elevated levels of uncertainty we find ourselves in, and the potential risks to growth, it looks very likely that interest rates will continue to remain depressed in the foreseeable future. As we move forward into Q2 ’20 and beyond, I can see a quest for higher and consistent yield, bringing dividend plays into sharper focus. I also believe that this year could see some realignment in the capital allocation policies of global businesses as they struggle to find suitable growth avenues to deploy capital; this spare gunpowder should find its way into shareholders’ pockets by way of higher dividend payouts. All in all, I think the conditions are ripe for dividend themes to flourish. The recent weakness across all risk assets make this a fantastic time to get into these historically pricey dividend plays.

Having laid out this premise, I’d like to plump for the Vanguard International Dividend Appreciation ETF (VIGI). This is a full-replication, passively managed ETF that looks to track the performance of the NASDAQ International Dividend Achievers Select Index. The fund has a relatively recent history, having been around only for about four years (launch date 25th February, 2016), yet has managed to amass a sizeable total net assets figure worth $1.3 billion. VIGI brings some useful diversification away from US stocks, giving investors exposure towards companies that are renowned for increasing dividends in the developed and emerging markets. What’s key here is the emphasis on “increasing dividends”. The “dividend yield” metric is often resorted to when gauging stocks’ attractiveness, but this can often be skewed by depressed share prices. This checklist of “increased dividend” that VIGI employs to benchmark dividend plays is a far more rigorous and meaningful measure; VIGI only considers developed and emerging market stocks that have shown increased y-o-y dividend growth over a period of 7 years.

Peer comparison across key metrics

I’ve looked at VIGI vis-à-vis two of its key peers in this international dividend space: the Franklin LibertyQ Global Dividend ETF (FLQD) and the WisdomTree International LargeCap Dividend ETF (DOL).

VIGI offers an excellent combination of an attractive dividend yield combined with low costs. The gross indicated dividend yield at c.4.5% is better than that of both FLQD and DOL, whilst the expense ratio is almost half that of its peers, indicating strong efficiency. I also like the level of diversification, with VIGI’s portfolio being spread across 400-plus stocks. This degree of hedging across stocks is far less pronounced for FLQD and DOL.




Inception date




Total Assets under management ($m)




Dividend Indicated Gross Yield %




Expense ratio %




No. of stocks




Source: Bloomberg, Seeking Alpha, Vanguard

Analysis of holdings

VIGI looks like a well-diversified play both on a sector exposure and stock exposure basis. At this stage of the cycle, I like its relatively high exposure to defensives such as consumer defensive (15%) and healthcare (13.5%); this should come in handy if we slip into a downturn. Encouragingly, they have limited exposure to the levered risky plays in energy (2.8%) and real estate (1.55%). That said, I am slightly disappointed to see only a 2% exposure to utilities.

Source: Seeking Alpha

Source: Seeking Alpha

In the current environment, the jury is out on the prospects of technology (13.7%), but I do think that the current quarter could be a good one for VIGI’s largest stock exposure, Tencent Holdings (OTCPK:TCEHY) (4.5%), which happens to be a tech play. Ironically, this was one of the few companies that benefitted from the coronavirus outbreak, as increased home lockdowns in China saw a spike in new client additions for its key video games, Honor of Kings and Peacekeeper Elite, as well as for its online conferencing platform, Tencent Cloud Conference. Admittedly, this traction may well come off as the situation with the pandemic improves.

Source: Bloomberg

Source: Bloomberg

Another key holding of VIGI, Swiss-based health diagnostic firm Roche (OTCQX:RHHBY) (3.5%), will likely also benefit from the coronavirus impact. The company was recently granted “emergency use authorization” by the US FDA for its COVID-19 test. These fully automated tests can speed up testing by 10x. The company has mentioned that the product is available for use in Europe and countries that accept its CE marking for medical devices.


Almost half of VIGI’s portfolio (47%) is towards companies in Europe, with the next key regions – Emerging Markets at 22% and Pacific at 21% – making up less than half of the European exposure. Europe is poised to face a difficult year with growth expected to contract -1% y-o-y.

Even though it is not the sector it is most exposed to, VIGI’s exposure towards the financial sector, at 13.5%, is somewhat on the higher side. Given the likely low interest rate regime and increased credit risks that could likely crop up on account of the coronavirus pandemic issues, I think financials may well underperform this year.


Source: TradingView

Given a limited history of only four years, it is hard to draw any sweeping conclusions from the VIGI’s long-term price action. What is evident though, is that this ETF has almost given up all its gains since inception (February 2016) and is now trading less than 5% away from the price zone at the time of listing. I think this $51-52 level represents a great zone to add positions. I do believe dividend themes could become pricier as the year progresses, so now is a great time to get into these plays, especially one like VIGI, with a rigorous dividend screening mechanism, good yield and expense metrics, and some international diversification. And be not afraid. A rally is likely coming soon, based on the indicators I track in The Lead-Lag Report.

Remember, stocks tend to bottom when headlines are at their worst.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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