Where is the Foreign Dividend Boom Headed?

European country flags lining soccer stadium — (Image credit: Getty Images)

I’ve long admired the popular Pacer U.S. Cash Cows exchange-traded fund (COWZ). Less well known is that Pacer employs its free cash flow and dividend strategy overseas. In a year when U.S. stocks lag European stocks, Latin American stocks, most Asian stocks and our own expectations, Pacer Developed Markets International Cash Cows 100 (ICOW) and Pacer Global Cash Cows Dividend (GCOW) are up 17% and 13%, respectively. (The first is 99% non-U.S. and the second is 75% foreign, hence the difference. “Global” funds include U.S. issues; “international” ones do not.)

More to the point, the international ETF yields 4.4% and the global option yields 3.9%, twin reminders that foreign companies also bundle pallets of cash for their shareholders. And with the dollar off in 2025, dividends in euros or yen or Swiss francs or Polish zlotys or Malaysian ringgit mean a U.S. fund can pass along a few extra bucks on the currency exchange. Hence a bunch of international ETFs that emphasize dividends are doing even better in 2025 than the Cows.

WisdomTree International High Dividend (DTH) is up 22%. GlobalX MSCI SuperDividend EAFE (EFAS), a large-cap, rich-world index fund, is having a year for the record books, returning 30% through June 20 with a 4.5% dividend yield. The GlobalX fund is tiny, and although it’s a passive fund, it has a propensity to swing in value more than the market overall. So I’m wary of overpromoting it instead of more-diversified and larger ETFs such as the Pacer pair or iShares International Select Dividend (IDV), which is up 26% for the year so far and pays more than 5%.

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Will the foreign dividend boom continue?

These golden first-half-of-2025 results aside, relying on foreign stocks for essential and predictable income is a challenge.

Overseas companies pay dividends annually or semiannually, and the amounts have no connection to previous years; a reduction does not set off investor alarms as it does in U.S. circles.

And due to this timing, funds often make outsized distributions in June, for example, and then force you to wait until December for the next big check.

The Pacer International ETF is an exception because it pays quarterly and reasonably consistently. So does Vanguard International High Dividend Yield (VIHAX). Federated Hermes International Strategic Value Dividend (IVFAX), which is one of the few actively managed funds in this category, pays monthly, though in some months the distribution is less than 1 cent a share.

Where is this foreign dividend boom headed? I asked fund managers to predict upcoming distributions and increases, and their answers were so vague that I’ll skip repeating their word salads.

A Standard & Poor’s intelligence report, dated late May, estimates 2025 will end with European firms — which dominate these international dividend funds — dialing down payout growth from 7.5% in 2024 to 3.5% this year and then to 3.2% in 2026, with the taper led by banks and automakers, which are frightened by U.S. tariffs and Chinese electric vehicles. Financial firms are as much as 40% of the weighting in funds such as the Vanguard offering, so dividend austerity by banks will knock at least a percentage point off these funds’ yields.

However, there is also growth, and the Pacer, Vanguard and Federated Hermes funds seem set to keep beating the S&P 500 for a while.

The actively managed Federated fund complements Federated’s Strategic Value Dividend (SVAAX), its active domestic dividend fund. The foreign version is light on banks and favors utilities and drugs. Volatility is low, and the 4.9% yield is compelling. It is up 19% so far this year. Give it and the Pacer international fund a shot.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Kosnett is the editor of Kiplinger Investing for Income and writes the "Cash in Hand" column for Kiplinger Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.