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Altria, Microsoft and Verizon have become among the most popular blue-chip dividend stocks, due to their large profits, healthy yields and regular dividend increases.
That’s no surprise. We American investors are typically self-centered when it comes to investing, preferring to own domestic companies that we “know.” Similarly, financial advisors will often recommend that the vast majority of a portfolio be invested in U.S. large-cap stocks.
That American first strategy has delivered stellar results since the market lows in early 2009. Just take a look at the performance of the bluest of the blue-chip indexes, the S&P 500 ETF (NYSE: SPY), compared with the performance of the global MSCI EAFE (NYSE: VEA).
The MSCI EAFE is an index that tracks stocks in 21 developed countries around the world, excluding the U.S. and Canada. It’s the benchmark for international stocks in the developed world. As you can see, the 233% gains for the S&P dwarf the 98% rise for the MSCI EAFE.
Now, what’s interesting is that this is starting to change. Since the start of 2017, the international stocks have been beating the S&P 500. The MSCI is up 15%, versus a 10% rise in the S&P.
My screen this morning of the world’s best-performing dividend ETFs tells the same story:
U.S. blue-chip stocks are no longer the “no brainer” investment choice for those seeking income.
I started by looking at the year-to-date performance of 173 dividend ETFs ̶ and excluding those leveraged ETFs that offer two times or three times the returns of the “regular” underlying index.
Here are the top five winners this year. And I’m sure you’ll quickly notice that none of these ETFs are investing in U.S. stocks.
- WisdomTree Europe Quality Dividend Growth (EUDG): +23%
- Cambria Emerging Shareholder Yield (EYLD): +24%
- WisdomTree Europe SmallCap Dividend (DFE): +24%
- BullMark LatAm Select Leaders (BMLA): +24%
- Tierra XP Latin America Real Estate (LARE): +30%
Now, the outperformance of international stocks is underway.
It’s tough for we Americans to realize this, since we’re nearly exclusively focused on U.S. stocks. Yet ignoring this trend could be a huge mistake.
Why? Well, let’s take a look back at the last time this happened.
It was the year 2001, and U.S. stocks had handily beaten international equities for more than eight years.
After that period of outperformance ended, international stocks outperformed U.S. equities for the subsequent 78 months.
They delivered 11.2% annualized returns during this period, versus a paltry gain of 3.6% for U.S. stocks.
Is this bull market coming to an end? There’s no way to know for sure.
We know that there are market cycles. The bull market for U.S. stocks is long in the tooth. International stocks have lagged the U.S. rally. And they are now starting to outperform.
Astute investors will recognize the importance of market cycles. For those seeking higher yields and healthy appreciation, now’s the time to look at investments outside of the U.S.
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