Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How International Dividend Stocks Diversify Income in 2026
Transcript
- Lucas: Luna, the S&P 500 is sitting at 7,554, the Dow just crossed 51,671, and the yield on the ten-year Treasury is 4.48 percent. In that environment, a lot of dividend investors are asking: where do I find yield without reaching for risk? Luna: And the obvious answer is international stocks, right? But U.S. investors have been burned by that play before. Lucas: Exactly. The narrative has been that U.S. stocks outperform, so why bother? But look at the numbers. The S&P 500 dividend yield right now is about 1.3 percent. The MSCI EAFE index — developed markets outside the U.S. and Canada — yields around 3.2 percent. That's nearly two and a half times more income. Luna: And that gap has been persistent for a while. But investors worry about currency risk, political instability, and lower growth. Lucas: Those are real concerns, but they're often overblown. Let me give you a concrete example. Unilever — the consumer goods giant behind Dove, Ben & Jerry's, and Hellmann's — trades on the London Stock Exchange. Its dividend yield is about 3.8 percent, and it has grown that dividend at roughly 4 percent annually over the past decade. Luna: Compare that to Procter & Gamble, which yields about 2.5 percent. So Unilever gives you a 130-basis-point yield pickup, and similar dividend growth. Lucas: Right. And that's not cherry-picking. Nestlé yields 3.1 percent, Toyota yields 3.5 percent. These are blue-chip names with global revenue streams. Their dividends are supported by cash flows from all over the world, not just their home country. Luna: But here's the pushback: currency. If the dollar strengthens, those dividends get eaten up when converted back to dollars. In 2022, the dollar rallied hard and international stocks lagged. Lucas: That's true, but there are ways to hedge. The iShares International Select Dividend ETF, ticker I-D-V, hedges currency exposure. It yields about 5.2 percent right now. The Vanguard International Dividend Appreciation ETF, V-I-G-I, is unhedged but focuses on companies with strong dividend growth — it yields around 3.5 percent. Luna: So you can choose your poison. Higher yield with currency risk, or moderate yield with growth focus. Lucas: And the thing is, currency risk cuts both ways. If the dollar weakens, your international dividends get a tailwind. Over the long run, currency fluctuations tend to cancel out. What matters more is the underlying business strength. Luna: I'll add another angle: valuation. U.S. stocks are expensive by historical standards. The S&P 500 price to earnings ratio is around 22. The MSCI EAFE is closer to 15. So you're not only getting higher yield, you're paying less for each dollar of earnings. Lucas: That's the value case. And when we look at dividend growth, international companies have been increasing payouts steadily. Unilever has raised its dividend for over 30 consecutive years. Nestlé has done so for over 25. Luna: So why don't more U.S. investors pile in? Is it just home-country bias? Lucas: A lot of it is. The U.S. market has been the best performer for the past decade, so it's easy to ignore everything else. But diversification is about what you don't know. Having exposure to different economic cycles, different central bank policies, different consumer bases — that's valuable. Luna: Let's talk real portfolio construction then. If I'm a dividend investor with 100 percent in U.S. stocks, what's a reasonable allocation to international? Lucas: I'd say 20 to 30 percent. You can get that through a single ETF like VIGI or IDV, or you can pick individual names. A simple starter portfolio might include Unilever, Nestlé, Toyota, and maybe a European utility like Iberdrola, which yields around 4.5 percent. Luna: One thing to watch: withholding taxes. Many countries tax dividends paid to foreign investors. For U.S. investors, there are tax treaties that reduce that rate — usually 15 percent instead of the standard 30 percent. But it's something to factor in. Lucas: Good point. And ETFs handle that at the fund level. The net yield you see is after those taxes. So it's baked in. Luna: I think a lot of our listeners might be hesitant because of the SpaceX IPO headlines — everyone's focused on growth, not income. But for a dividend investor, international stocks offer a compelling alternative. Lucas: Exactly. And if today's conversation helped you think about diversifying your income stream, that's the whole point. The show stays ad-free because listeners like you support it at buy me a coffee dot com slash fexingo. It's a simple way to say this content is worth keeping around. Luna: Absolutely. And we really appreciate that. Now, back to the numbers — one thing I want to highlight is that the yield on the ten-year Treasury at 4.48 percent makes dividend stocks competitive. But international dividends at 3 to 5 percent look even better on a relative basis. Lucas: Right. And remember, dividend growth compounds. If you reinvest those higher yields, the total return over time can be substantial. Let's look at a simple example: $10,000 invested in the S&P 500 yielding 1.3 percent versus the same amount in an international ETF yielding 3.5 percent. Over 10 years, assuming 5 percent dividend growth and no price change, the international portfolio generates about $4,500 more in dividends. Luna: Of course, price changes matter. But that math shows how yield plus growth can close the performance gap even if U.S. stocks appreciate more. Lucas: One more practical tip: if you're worried about currency, consider a hedged ETF like the iShares Currency Hedged MSCI EAFE Dividend ETF, which trades under H-D-V. It yields around 4.8 percent and eliminates the dollar impact. Luna: That's a good tool for near-term income, though over long periods the hedging cost eats into returns. So it's about your time horizon. Lucas: Exactly. For a retiree needing current income, hedging makes sense. For a younger investor building wealth, unhedged might be better. Luna: So to sum up: international dividend stocks offer higher yields, lower valuations, and diversification. The risks — currency, political — are manageable with the right ETF or individual stock selection. Lucas: And with the ten-year at 4.48 percent, the bar for income investing is higher than it was two years ago. International stocks clear that bar easily. Do your homework, check the dividend growth history, and consider adding some global exposure. Luna: Great advice. I know I'll be looking at VIGI this week. Lucas: Same here. That's it for today. We'll be back tomorrow with another angle on building income.