Opportunities abroad Opportunities abroad http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\video\airport-waiting-area-small.jpg October 6 2023 October 6 2023

Opportunities abroad

International dividend payers have come through a lost decade.

Published October 6 2023
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Video Transcript
Question: How do U.S. and international dividend payers compare?
Deborah Bickerstaff: It is a really interesting time to take a look at international dividend investing. We do see a complete opposite performance pattern happening abroad versus what we're experiencing here in the U.S. Part of that, frankly, is because we've come through really a lost decade for international investing. If you look at the last 10 years, I would suggest up to last September, the only return the international marketplace could really produce was from the dividend check. Remember, here we did have the financial crisis, but abroad they also had the Eurozone crisis, Brexit, ongoing concerns about China and GDP growth, the Ukraine-Russia conflict, and of course ongoing concerns about China and Taiwan. And that has really kept a lid on the opportunity set abroad. But what we've seen here in 2023, if we go back and assess that S&P 500 without the Magnificent Seven, the return for the market would've been here in the U.S. roughly 6%. But if we look at the MSCI World ex U.S., it has put up a 10% total return year-to-date. And why is that? Well, frankly, it's a very different market construct when you look abroad. Here in the U.S., I think the U.S. marketplace has a technology problem. A lot of technology. Again, when you look at the S&P 500 and the Mag Seven, that's 40% of the benchmark. But if you look at the international benchmarks, you're talking just 7, 8% technology. So where we have this very narrow market leadership here in the U.S., what we've seen abroad has been a broadening of performance, more diversified performance. And I think that is really being looked upon as an excellent opportunity going forward. Remember, it's been 10 years of nothing, but regardless, if you are the dividend collector, you have that natural opportunity in the international space. In the international marketplace, frankly, companies are more committed to a progressive generous dividend policy for the owners of the company. They operate with higher payout ratios than what we see here in the U.S. So in the U.S. our payout ratios typically 30 to 35%, hence our very scant yield on our market. But abroad, payout ratios tend to be 50% or better, which leads to higher dividend yields abroad.
Tags Equity . International/Global . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

There are no guarantees that dividend-paying stocks will continue to pay dividends. In addition, dividend-paying stocks may not experience the same capital appreciation potential as non-dividend-paying stocks.

The value of equity securities will rise and fall. These fluctuations could be a sustained trend or a drastic movement.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

MSCI World ex USA High Dividend Yield Index is based on the MSCI World ex USA Index, its parent index, and includes large- and mid-cap stocks across 22 of 23 Developed Markets countries. The index is designed to reflect the performance of equities in the parent index (excluding REITs) with higher dividend income and quality characteristics than average dividend yields that are both sustainable and persistent. The index also applies quality screens and reviews 12-month past performance to omit stocks with potentially deteriorating fundamentals that could force them to cut or reduce dividends.

Indexes are unmanaged and investments cannot be made in an index.

Magnificent Seven: Moniker for seven mega-cap tech-related stocks Amazon, Apple, Google-parent Alphabet, Meta, Microsoft, Nvidia and Tesla.

Past performance is no guarantee of future results.

Federated Equity Management Company of Pennsylvania