Soup triggered a thought with this post from another thread-- Jeremy Siegel ("The Future for Investors") thinks that dividends are a great investment strategy.soupcxan said:...is it foolish to only hold dividend focused stocks as the equity portion of your portfolio? Obviously this goes against MPt and the conventional wisdom, and I'll miss out on mid-, small-, and international stocks...but I just don't like investments that don't produce current income. Reminds me too much of the "greater fool" theory.
International investing is presumed to be a necessary diversifier, but disclosure & investor advocacy seems to be an even bigger problem than American stocks. I have a tough enough time deciding whether or not to trust the 10Ks & 10Qs I'm reading now, and I have even less faith in other country's investor GAAP transparency. However dividends make it difficult to tell lies. If a company is paying, even growing, their dividends without taking on an unsustainable payout ratio-- they they're probably making money.
PowerShares' international dividend ETF (PID) is paying out nearly 3% divs from large value companies. They're over 90% outside the U.S. with a huge financial exposure (35%) followed by consumer staples, utilities, & energy. Their largest country investments are Canada, the UK, & Australia but presumably they can have someone do foreign-language stock research. Stocks in the index have been raising their dividends for five years or longer. (Ironically one of their biggest holdings appears to be Barclays, the owner of the iShares brand of ETFs.) PID is unhedged, of course, and has a 0.5% ER. That's a big ER for ETFs but small compared to most international mutual funds.
While we believe in an international asset allocation, we also believe that Tweedy, Browne (TBGVX) has had its day. We've been buying shares since 1996 and have pretty substantial cap gains but we need to rebalance again. Things that concern me are the fund's high expense ratio (1.39%), its bloat (closed for several months now) and the relative underperformance of its sister fund, American Value (pretty much the same team running both funds). Tweedy also hedges against the dollar. Hedging was quite comforting to us in the mid '90s but Tweedy themselves admit that hedging is probably a long-term wash, and in the short term it's costing us money. Higher volatility of an unhedged fund isn't an issue for us any more.
Tweedy has always been a very low turnover fund (6-13%) but even they admit that they're having trouble finding investments and they're selling a lot of their stocks at their estimate of fair value. They're tax efficient, but this year I bet they're going to cough up quite a bit (for them) in cap gains. So we plan to "rebalance" by selling the Tweedy shares in our IRAs and buying about the same amount of PID. We'll keep reinvesting those dividends, so I guess we should be praying that PID's share price stays flat or that the dollar recovers.
Again, PID's two biggest attractions are (1) international stocks with dividends and (2) a cheap ER. TBGVX is our last mutual fund and we're not interested in buying more MFs. Are we missing other ETFs with better options, or other types of choices?