It’s not just dividend withholding tax which makes it hard to be a European dividend investor. Unfortunately we are also lacking access to many popular and great Dividend ETFs like the ones from Vanguard ($VIG) or Schwab ($SCHD).
Nevertheless, we don’t give up!
That’s why I would like to share with you today my thoughts about several of the 15 dividend UCITS ETFs that I studied over the last few weeks. And the good news is: all of these should be accessible to you as an European dividend investor.
But before we get started, it’s important to understand my approach to analyzing Dividend UCITS ETFs. It’s actually not that much different compared to my approach to individual stock picking. Because in the end it’s important to me that my investments works for me in a compounding manner.
That’s why I prefer to see an attractive dividend yield (> 2.75%) and a year-over-year growing dividend. Ideally the dividend yield plus the 5 year dividend compounded annual growth rate exceeds the chowder rule of 12.
I’m not sure if this is realistic to ask from a Dividend UCITS ETF, but let’s have a look at the below visual!
There are 2 Dividend UCITS ETFs that meet the Chowder rule criteria in its native form according to my analysis. These are:
- $SEDY – iShares EM Dividend UCITS ETF
- $USDV – SPDR S&P US Dividend Aristocrats UCITS ETF
The other three have a catch to it, because they exist less than 5 years. Hence, their compounded annual dividend growth rate is still subject to further evidence which should come with time.
Having said that, lets start with having a look into both these Dividend UCITS ETFs which exceeded the chowder rule >= 12 criteria.
iShares Emerging Markets Dividend UCITS ETF
|ISIN||IE00B652H904||Total Expense Ratio||0.65%|
The iShares EM Dividend UCITS ETF is one of the more expensive Dividend ETFs in this article. A total expense ratio of 0.65% is really expensive, especially when you realize how much of a compounding impact this can have on your future performance. Hence, this better be an excellent dividend growth ETF so that it justifies its expense rate.
So first of all, as dividend growth investors, we like to see dividend growth.
And here is where the fun stuff starts, because the chowder rule looks at it from a 5 year compounded annual growth rate. And what we can clearly see here is that taking 2016 as a basis for calculation is actually misleading. Investors in this dividend ETF have also experienced a ~25% dividend cut during the midst of the pandemic. I really wouldn’t get happy from this if I would have to rely on this ETF from an income point of view.
So what we observe here are unreliable dividend payments when looking at it from a dividend growth point of view. This tells me that this dividend ETF is not really fit for dividend growth oriented investors.
And honestly, I’m even more strengthened in my opinion when I see the top 10 companies in this list who make up together 22.5% of the total index.
- Globaltrans investment GDR – 3.18%
- China Power – 3.14%
- Adaro Energy – 3.00%
- TB Bukit Asam – 2.11%
- Yanzhou Coal – 1.97%
- Total Access – 1.95%
- Transmissora Alianca – 1.88%
- Cteep Companhia de Transmissao – 1.84%
- Supreme Elec – 1.75%
- Severstal Pao – 1.70%
Honestly, there’s nothing in this list which I’d personally like to own as an individual stock based on a quick screen I did.
On the other hand, if you are looking for high current dividend income and could accept dividend cuts, then this might be a good fit for you. The dividend is still 2 times higher than the average yield of Dividend ETFs in this post.
SPDR S&P US Dividend Aristocrats UCITS ETF
|Ticker||$USDV / $LON:UDVD||Dividend Yield||2.23%|
|ISIN||IE00B6YX5D40||Total Expense Ratio||0.35%|
The SPDR S&P US Dividend Aristocrats UCITS ETF has a title which sets really high expectations to us as dividend investors. This especially holds true when reading their prospectus:
The S&P High Yield Dividend Aristocrats Index is comprised of the stocks of the S&P Composite 1500® Index that have increased dividends every year for at least 20 consecutive years. These stocks have both capital growth and dividend income characteristics, as opposed to stocks that are pure yield, or pure capital oriented.
Source: USDV prospectus
So far so good!
And I must confess, the total expense ratio is still relatively high when comparing it to it’s US equivalent $VIG from Vanguard. Unfortunately such ETFs are not accessible to us as European investors. On the other hand, a 0.35% TER is kind of average for the Dividend ETFs listed in this article.
The dividend yield is also relatively low with 2.23%, because I have a minimum dividend stock screener criteria of 2.75%. Anything below that threshold must have really awesome double digit growth prospects before I would get excited about it.
But maybe that’s where $USDV shines, because it has a 5 year Compounded Annual Growth Rate (CAGR) of 12.58%.
As you can see in the chart above, the dividend ETF nearly doubled its dividend payout since 2016. Besides that, it didn’t see any drop of it’s dividend distributions during 2020 which is really a sign of strength.
What is also worth mentioning is their top 10 holdings:
- Exxon Mobil Corporation – 2,56%
- International Business Machines Corporation – 2,03%
- Chevron Corporation – 1,99%
- AbbVie Inc. – 1,90%
- People’s United Financial Inc. – 1,88%
- National Retail Properties Inc. – 1,80%
- Cardinal Health Inc. – 1,69%
- Realty Income Corporation – 1,68%
- Leggett & Platt Incorporated – 1,67%
- Amcor PLC – 1,63%
This top 10 makes up 18.8% of the total index which tells me that it’s quite well diversified. At the same time it consists of many classic dividend growth companies which some of you will own as well. Actually, I own $XOM, $CVX, $ABBV and $O from this list.
Also, I see no reason why this Dividend Aristocrat ETF wouldn’t continue to grow its dividends over the next decade going forward. Their strategy is a pure-play dividend growth strategy and it fits very well to us as dividend growth investors.
All in all, I could definitely own this Dividend ETF, but not at this price. I would first like to see it dropping towards a 2.75% dividend yield before considering a position in it.
This also means that for me it isn’t a good fit for a monthly dollar-cost-averaging strategy due to the relatively low dividend yield.
These were the top 2 dividend UCITS ETF ‘s based on the Chowder rule. But as mentioned before, there are still 3 other Dividend UCITS ETFs that have a high Chowder rule score. Let’s just have a look into them as well, because they start to look very promising.
Fidelity US Quality Income UCITS ETF USD
|ISIN||IE00BYXVGX24||Total Expense Ratio||0.25%|
The Fidelity US Quality Income UCITS ETF only exists since 2016 and it is focused on US dividend paying companies. The fund’s goal is focused on total return, which means both income and price appreciation. It aims to achieve this by tracking the Fidelity US Quality Income Index.
I honestly like their setup a lot. On one hand it takes some great quality aspects into consideration like the below for non-bank stocks:
On the other hand it is focused on the ESG sensitive investor by being clear in its exclusion criteria (i.e. no military, thermal coal or tobacco stocks).
From a dividend point of view it excludes companies that don’t pay a dividend or have a negative dividend growth over the last 5 years. In my opinion it could be a bit stricter there, but so far it has done the index well. Even during the 2020 pandemic as can be observed in the dividend growth chart below.
I also like that it has a relatively low total expense ratio of 0.25% which is quite uncommon for European investors.
Having said that, I think that it should come as no surprise that such selection criteria for this Dividend UCITS ETF results in an awesome top 10 list:
- Apple Inc – 6,6%
- Microsoft Corp – 5,4%
- NVIDIA Corp – 2,0%
- UnitedHealth Group Inc – 1,6%
- The Home Depot Inc – 1,6%
- Procter & Gamble Co – 1,4%
- Exxon Mobil Corp – 1,3%
- Verizon Communications Inc – 1,2%
- Comcast Corp Class A – 1,2%
- Pfizer Inc – 1,2%
Together these 10 companies make up 23.50% of the total index. Most of these are very high quality companies with very strong tailwinds. I believe that this should allow them to continue their dividend growth with high single- to double digit growth numbers.
In other words, the future looks bright for this Dividend UCITS ETF.
iShares MSCI World Quality Div UCITS ETF USD Dist
|ISIN||IE00BYYHSQ67||Total Expense Ratio||0.38%|
The iShares MSCI World Quality Div UCITS ETF also only exists since late 2017. This dividend UCITS ETF is focused on worldwide large- and midcap stocks with a higher than average dividend and certain quality characteristics. It excludes REITs and stocks where the dividends are at risk, a poor dividend growth track record or weak company fundamentals (see KIID for more info).
So far this sounds really good right? Well, unfortunately the annualized dividend growth since 2017 is a bit misleading, because the last 4 years the dividend was flat and relatively irregular.
Honestly, this is also where my interest stops, because it’s a relatively low yielding dividend UCITS ETF with no dividend growth. On top of that it comes with a 0.38% total expense ratio which in my opinion makes it unattractive to dividend growth seeking income investors.
Fidelity Global Quality Income UCITS USD Inc ETF
|ISIN||IE00BYXVGZ48||Total Expense Ratio||0.40%|
The Fidelity Global Quality Income UCITS USD Inc ETF also exists since 2017. This dividend ETF has a similar focus like its US brother discussed a little bit earlier.
In this case it tracks the Fidelity Global Quality Income Index which is also focused on total return and uses a nearly identical set of criteria. The main difference is its geographical scope. Unlike $FUSD, this dividend UCITS ETF treats the whole globe as its scope.
However, this includes the US and it still means that US based stocks are dominating the top 10 of this fund:
- Apple Inc – 4.5%
- Microsoft Corp – 3.7%
- NVIDIA Corp – 1.3%
- JPMorgan Chase & Co – 1.1%
- UnitedHealth Group Inc – 1.0%
- The Home Depot Inc – 0.9%
- Exxon Mobil Corp – 0.9%
- Procter & Gamble Co – 0.9%
- Nestle SA – 0.8%
- Verizon Communications Inc – 0.8%
I guess you could say that this fund offers you the best of both worlds, because you don’t need to miss out on some excellent international dividend stocks like Nestle. As a fact, US stocks make up ~69% of the index, followed by Japan (7.3%), UK (4.3%) and Switzerland (3.5%) | data as per 18-feb-2022.
It’s dividend growth is not the same though. I guess this is where you can see that the US just excels in its commitment to stellar dividend growth. On the other hand, last year’s dividend growth was really awesome with almost 25%!
Last but not least, the total expense ratio is 0.40% which is more expensive than $FUSD. I believe this is also something to take into consideration when making a choice.
All in all, I believe that this is a high quality dividend UCITS ETF which is almost meeting my threshold from a dividend screener point of view.
Interested in buying one of these Dividend UCITS ETFs and don’t have a broker yet? Check out my 3 favorite stock brokers which serve different type of investors:
There are still 10 other dividend UCITS ETFs which I have analyzed and which might be of interest to you. However, if I would discuss each and everyone of these then this article becomes very lengthy.
That’s why I would also like to share this single overview with you and it includes some of the key metrics that I find important as a dividend growth investors.. I hope it helps and allows you to make the right investment decisions.
But we’re not done yet, because there are still 3 dividend UCITS ETFs which I find interesting for different reasons. Hence, let’s also look into those.
VanEck Vectors Ms Developed Markets Dividend Lead
|ISIN||NL0011683594||Total Expense Ratio||0.38%|
|Provider||Van Eck||Payout Frequency||Quarterly|
VanEck Vectors Ms Developed Markets Dividend Lead ETF exists since 2016. The fund aims to closely track the performance of the Morningstar® Developed Markets Large Cap Dividend Leaders Index™.
This index is focused on total return focused investors who are also interested in dividend income. The criteria of the index are listed below:
These are relatively good criteria for a dividend ETF focused on total return. The criteria allow for relatively high yielding companies without raising too many red flags regarding dividend safety.
And this is also visible in the dividend growth performance of the index. The ETF yields 3.7% which is one of the highest yielding dividend UCITS ETFs which I analyzed.
But the impact of these criteria are also relatively flat and unreliable dividend growth. What we can also see is the impact of the 2020 pandemic due to the ~20% dividend cut which investors had to take on the chin.
If you are looking for a decent yielding dividend UCITS ETF with international exposure then I would personally give preference to iShares Emerging Markets Dividend UCITS ETF. At least you get a 6%+ dividend yield which is similarly unreliable / flat in dividend growth like the this one.
There is one other consideration though, because I much more prefer the top 10 stocks in this ETF:
- Exxon Mobil – 5.57%
- AT&T – 5.04%
- Chevron – 4.71%
- Verizon – 4.56%
- AbbVie – 4.27%
- Phillip Morris – 3.58%
- Novartis – 3.46%
- TotalEnergies – 3.43%
- British American Tobacco – 3.21%
- Rio Tinto – 3.19%
Together they form 41% of the index.
iShares UK Dividend UCITS ETF GBP (Dist)
|ISIN||IE00B0M63060||Total Expense Ratio||0.40%|
The iShares UK Dividend UCITS ETF is one of the oldest ETFs in this list, because it exists already since late 2005. The goal of this fund is to track the FTSE UK Dividend+ index. This index is designed to track the 50 highest yielding companies in the FTSE 350 index, with exclusion from investment trusts. The index is neither taking any ESG requirements into account. Other important exclusion criteria are:
- No dividend paid in the last 12 months
- The bottom 5% with a negative 6 and 12 months total return
- Very low trading volumes (i.e. < 3 mln GBP)
The index is then ranked via certain criteria and the top 50 are being selected for inclusion in the index.
I appreciate that you receive a nice high current yield which is nicely in line with the fund’s goals. However, this approach is not so much looking at consistent dividend growth. Hence, it should come as no surprise that their dividend distributions are inconsistent and unreliable from a dividend growth point of view.
Personally I find this ETF interesting as a screener for UK dividend stocks. Just have a look at their top 10:
- British American Tobacco PLC – 6.21%
- BP PLC – 5.24%
- Rio Tinto PLC – 5.23%
- HSBC Holdings PLC – 4.95%
- Vodafone Group PLC – 4.92%
- Imperial Brands PLC – 4.72%
- Anglo American PLC – 4.71%
- Shell PLC – 4.42%
- National Grid PLC – 4.05%
- GSK PLC – 3.82%
Together they make up ~48% of the index and there are some great dividend growers in here which I prefer to hold as individual stocks (i.e. $BATS, $SHELL, $RIO, $NG).
Last but not least, it should come as no surprise that they excluded ESG requirements. Dark black oil and tobacco are dominating the top 10. Actually, I think it’s fair to say that this is the perfect sin-stock ETF 😎
FTSE Developed Europe UCITS ETF
|ISIN||IE00B945VV12||Total Expense Ratio||0.10%|
The FTSE Developed Europe UCITS ETF exists since 2013 and it’s the only ETF from Vanguard in this list. And who doesn’t love Vanguard ETFs? They are known to be very cheap and it doesn’t disappoint us with this Dividend UCITS ETF as you can get it at a 0.10% total expense ratio!
The fund’s objective is to track the FTSE Developed Europe index which is a combination of large- and midcap European stocks. The fund has a wide spread across Europe and the current top 10 consists of the following companies:
- Nestle – 3.12%
- Roche Holding – 2.36%
- ASML Holding – 2.31%
- LVMH Moet Hennessy Louis Vuitton – 1.79%
- Shell Plc – 1.74%
- AstraZeneca Plc – 1.59%
- Novartis – 1.58%
- Novo Nordisk – 1.39%
- HSBC Holdings – 1.28%
- SAP SE – 1.22%
I think it’s fair to say that this is a very high quality list from a European perspective. But this also comes at a cost, because several of these seem very richly valued with a low dividend yield. On the other hand it gives you some nice mixture of high dividend / low growth vs low dividend / high growth.
Unfortunately this ETF is not having the best track record from a dividend growth point of view. Like several others, the dividend payments are inconsistent and relatively flat over the last 8 years with a strong dip in 2020.
While I like the quality of this UCITS ETF, I’m not totally convinced that this is the best choice to make as a dividend growth investor. I would also like the price to come down a bit for it to become a more interesting candidate when focusing on total return.
My final thoughts about investing in Dividend UCITS ETF ‘s.
I hope you found this article interesting and that it helps a bit to clarify the strength of the different Dividend UCITS ETFs.
It for sure clarified a lot to myself. For several years I’ve been pondering to automate a core of my investing approach, but there’s really nothing in here which matches my personal investment style.
It also reconfirms to me how hard it is to be a European investor, because we’re exposed to so many expensive and underwhelming Dividend ETFs.
However, if I wouldn’t have time anymore to analyze individual companies then I would probably design my portfolio as follows:
- 40% into Fidelity Income UCITS ETF USD ($FUSD) – good dividend growth
- 30% into iShares UK Dividend UCITS ETF GBP ($IUKD) – high current dividend by companies I know
- 30% into FTSE Developed Europe UCITS ETF ($VEUR) – exposure to high quality European stocks
This would give me a nice mixture of dividend yield (avg: 3.4%) vs dividend growth (5 yr CAGR: 9.18%) . At the same time there is limited overlap between these 3 Dividend UCITS ETFs when it comes to their core holdings. It also allows for a nice setup and automation via for instance trading212.
That’s it from my point of view. I have discussed 8 out of the 15 Dividend UCITS ETFs that I researched. I’ve provided the other 7 tickers / ETF names in the list above. Please feel free to reach out if you want to know a bit more about any of those that I didn’t discuss. I felt that their performance was subpar to the others and that’s why I decided to not mention them any further. Off course also to keep this article condensed.
Having said that, let me know what you think and don’t be a stranger to let me and the community know about some of your thoughts in the comment section below.
European Dividend Growth Investor
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.