It’s not just dividend withholding tax that 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’ve studied as an SCHD alternative. And the good news is: all of these should be accessible to you as a 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 work 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 3 Dividend UCITS ETFs that meet the Chowder rule criteria in their native form according to my analysis. These are:
- $FUSD – Fidelity US Quality Income UCITS ETF USD
- $ISPA – iShares STOXX Global Select Dividend 100 (DE)
- $TDIV – VanEck Vectors Ms Developed Markets Dividend Lead
Might those be great SCHD alternatives (Schwab US Dividend Equity ETF)?
There are still two others that are close to the Chowder rule line which also might be worth having a look at ($SEDY & $FGQI).
Having said that, let’s start with having a look into these 3 Dividend UCITS ETFs which exceeded the chowder rule >= 12 criteria.
Disclaimer: all information in this article has been last updated on 13 June 2023. Mistakes in the data might exist.
Fidelity US Quality Income 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. Combine that with a 10.5% 5 year compounded annual dividend growth rate and it’s clear that we have quality in hands with this one.
Though, it had a small dividend income blip in 2022 and I expect dividend growth to reduce a bit going forward..
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 – 6.8%
- Microsoft Corp – 5.7%
- NVIDIA Corp – 2.6%
- Procter & Gamble Co – 1,6%
- Eli Lilly and Co – 1.4%
- The Home Depot Inc – 1,4%
- Chevron Corp – 1.4%
- Linde PLC – 1.3%
- Broadcome Inc – 1.3%
- AbbVie Inc – 1,3%
Together these 10 companies make up 24.80% 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 and it sounds like another European VIG alternative.
iShares STOXX Global Select Dividend 100 (DE)
|ISIN||DE000A0F5UH1||Total Expense Ratio||0.46%|
The iShares STOXX Global Select Dividend 100 ETF stands out by it’s high dividend yield. It does this while still showing an impressive 8.57% 5 year compounded annual dividend growth.
This growth rate does look a bit misleading though, because it really depends on how you measure it. In this case, the dividend was 0.98 Euro in 2018 and 1.37 Euro in 2022. Coincidently we are then comparing one of the best years with one of the lowest years which creates this high dividend growth number.
However, if we zoom out and look at the below chart, then we can see that the trendline is rather flat. The dividend tends to hover between 1 Euro and 1.5 Euro depending on the year.
The relatively flat trendline is what we may expect from this ETF after reading their KIID document. The fund’s strategy is based on tracking 3 underlying indexes:
- STOXX® Europe Select Dividend 30 index
- STOXX® North America Select Dividend 40
- STOXX® Asia/Pacific Select Dividend 30
Those indexes focus on basic criteria like: have paid out a dividend in the last 5 years, no negative dividend growth rate and a payout ratio below 60% or less.
Hence, these are lose criteria and allow for inclusion of high dividend payers that grow during good times, but cut their dividends as soon as there are some headwinds.
This is probably also the reason why their top 10 holdings is filled ith companies that most of us hardly ever heard of:
- SITC International Holdings LTD – 3.83%
- Yancoal Australia LTD – 2.64%
- Pacific Basis Shipping LTD – 2.48%
- Mitsui OSK Lines LTD – 2.22%
- Nippon Yusen – 1.92%
- Fortescue Metals Group LTD – 1.77%
- New World Development Company LTD – 1.67%
- JB Hi-i LTD – 1.67%
- Taylor Wimpey PLC – 1.5%
- Yara International – 1.44%
Together they make up slightly more than 19% of the entire index. 4 of them operate in the Industrials sector and 2 in the materials sector. We also know that those companies are very sensitive to economic cycles.
Having said that, I think that this might be an interesting index when assuming 1 Euro in dividend income as a bottom and a 5% yield under that assumption. In other words, when the ETF would trade at 20 Euro per share. Honestly thought, I consider this unlikely anytime soon.
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 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 4.8% which is one of the highest-yielding dividend UCITS ETFs which I analyzed.
However, it must be noted that their June dividend payment was 95 cents alone. This is by far their largest dividend payment in the year and it has to do with the tradition of European companies to pay dividends in May.
Having said that, the impact of the ETF criteria results also in 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 ($SEDY). At least you get an 8%+ dividend yield which is similar to being unreliable in dividend growth like this one.
On the other hand, I much prefer the top 10 stocks in this ETF:
- Verizon – 4.77%
- TotalEnergies – 3.69%
- Altria Group – 3.58%
- IBM – 2.97%
- Allianz – 2.59%
- Bnp Paribas – 2.58%
- Mercedes Benz Group Ag – 2.57%
- British American Tobacco – 2.52%
- Sanofi – 2.40%
- Toronto Dominion Bank – 2.34%
Together they form ~30% of the index.
In conclusion, the current Chowder score looks a bit misleading for this ETF if you think about extrapolating this into the future. Nevertheless, it has some well known top 10 holdings which might give you the international exposure that you’re looking for.
These were the top 3 dividend UCITS ETF ‘s based on the Chowder rule. But as mentioned before, there are still 2 other Dividend UCITS ETFs that have a high Chowder rule score. Let’s just have a look into them as well, because they might give you a better alternative.
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 dividend distribution is typially ranging between 0,90 Euro and 1,40 Euro. This is not showing strong dividend growth, because it really depends which years you use for the CAGR formula. In this case, 2017 or 2018 is clearly lower than 2022.
Besides that, investors in this dividend ETF have also experienced a ~25% dividend cut during the midst of the pandemic. I really wouldn’t be happy with that when my portfolio is under stress.
Having said that, 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 that are in total 16.8% of the total index.
- Companhia De Saneamento De Minas G – 2.2%
- Petroleo Brasileiro Pref Sa – 1.96%
- Transmissora Alianca Energia Eletr – 1.73%
- Asustek Computer Inc – 1.72%
- T3Ex Global Holdings Corp – 1.61%
- Riverstone Holdings Ltd – 1.55%
- Vedanta Ltd – 1.51%
- Energias Do Brasil Sa Brazil – 1.50%
- Sitronix Technology Corp – 1.49%
- Cia Energetica De Minas Gerais Pre – 1.48%
Honestly, there’s nothing in this list that I’d personally like to own as an individual stock based on a quick screen I did.
On the other hand, if you feel that 87 cents per year in dividends is a floor, then this ETF could give you a minimum 6.85% dividend yield after the deduction of the expense ratio.
You would just need to accept dividend cuts to be part of the game. In return, you will get a dividend that is still 2 times higher than the average yield of Dividend ETFs in this post. Not too bad, would you agree?
Fidelity Global Quality Income UCITS USD Inc ETF
|ISIN||IE00BYXVGZ48||Total Expense Ratio||0.40%|
The Fidelity Global Quality Income UCITS USD Inc ETF exists since 2017. This dividend ETF has a similar focus as 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 – 3.8%
- NVIDIA Corp – 1.7%
- Procter & Gamble Co – 0.9%
- Eli Lilly and Co – 0.9%
- Broadcom Inc – 0.9%
- Chevron Corp – 0.8%
- ASML Holding – 0.7%
- The Home Depot Inc – 0.8%
- Novo Nordisk – 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 Novo Nordisk. As a fact, US stocks make up ~66% of the index, followed by Japan (6.7%), UK (4.2%), and France (3.6%) | data as per 13-June-2023.
Its 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. Though, it looks like their annual dividend growth is slowing down.
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. Hence, I could see this as another interesting European VIG or SCHD alternative for European investors.
There are still 10 other dividend UCITS ETFs that I have analyzed and which might be of interest to you. However, if I would discuss each and every one 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.
📣 Nowadays, you can buy these Dividend UCITS ETFs at low costs. Join me at Interactive Brokers and build your portfolio brick by brick!
Investing involves risk of loss.
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.
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 was 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 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:
- Rio Tinto PLC – 4.83%
- HSBC Holdings PLC – 4.62%
- British American Tobacco PLC – 4.39%
- Legal and General Group Plc – 3.91%
- Vodafone Group PLC – 3.80%
- Imperial Brands PLC – 3.76%
- National Grid – 3.61%
- Schroders PLC – 3.52%
- Anglo American PLC – 3.42%
- SSE PLC – 3.15%
Together they make up ~39% of the index and there are some great dividend growers in here that I prefer to hold as individual stocks (i.e. $BATS, $LGEN, $RIO).
Last but not least, it should come as no surprise that they excluded ESG requirements. Mines and tobacco are dominating the top 10. Actually, I think it’s fair to say that this is the perfect sin-stock ETF 😎
Vanguard 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 – 3.20%
- Novo Nordisk – 2.40%
- ASML Holding – 2.35%
- LVMH Moet Hennessy Louis Vuitton – 2.19%
- Roche Holding – 2.01%
- AstraZeneca Plc – 2.01%
- Shell plc – 1.98%
- Novartis – 1.88%
- SAP SE – 1.39%
- TotalEnergies SE – 1.34%
I think it’s fair to say that this is a very high-quality list from a European perspective. Actually, some of these are proud members of the European dividend aristocrats list.
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.
On the other hand, the current dividend looks attractive right now!
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, for now.
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.
On the other hand, I do believe that there are a few European SCHD alternatives from a quality point of view. It’s just lacking the current entry yield compared to VIG or SCHD.
Having said that, if I wouldn’t have time anymore to analyze individual companies then I would probably design my portfolio as follows:
- 40% into Fidelity US Quality 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: 3.9%) vs dividend growth (5 yr CAGR: 4.5%). At the same time, there is limited overlap between these 3 Dividend UCITS ETFs when it comes to their core holdings.
That’s it from my point of view. I have discussed 7 out of the 15 Dividend UCITS ETFs that I researched. I’ve provided the other 8 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. Of 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
PS: the 13 June update of this blog post has been sponsored by:
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.