Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How International Dividend Stocks Diversify in July 2026
Transcript
- Lucas: The S&P 500 is sitting near seventy-five seventy-five as of this week, up about half a percent in the last five days. The Dow, on the other hand, is down nearly a percent. That divergence tells you something about where the money is flowing. Luna: Yeah, the Dow's heavier on industrials and old-school cyclicals. The S&P's tech tilt is carrying it. But for dividend investors, that split matters because a lot of classic dividend payers are in the Dow. Lucas: Exactly. And when you look at the yield curve — the ten-year is at four point five four percent, the two-year at four point sixteen — the spread has narrowed to about thirty-five basis points. That's still an inverted-ish curve, but flatter than it was a few weeks ago. What I want to talk about today is something we haven't really dug into on this show: international dividend stocks. Luna: Okay, I'm intrigued. Because the natural instinct is to stick with what you know — Coke, Procter and Gamble, Johnson and Johnson. All us based, all reliable. Why go abroad? Lucas: Diversification, plain and simple. But not just the usual 'don't put all your eggs in one basket' pitch. The correlation between US dividend stocks and international dividend stocks isn't one-to-one. When the US market sneezes, some international markets barely catch a cold. And right now, with the US market at elevated valuations — the S&P's forward P/E is above twenty — international stocks look cheaper on a relative basis. Luna: So you're saying the dividend yield on, say, a European consumer staple might be comparable or better, and you get a valuation discount on top? Lucas: That's the thesis. Take Nestlé. It yields around two point eight percent. Unilever, about three point three. Compare that to Procter and Gamble, which is yielding around two point four percent right now, and its stock is down one point five percent over the past week. The international names aren't necessarily higher yield, but they offer exposure to different economic cycles, different currencies, different regulatory environments. Luna: Currency is the big wild card though. If the dollar strengthens, your international dividends are worth less when converted back. That can eat into total return. Lucas: Absolutely. In fact, that's been the story for most of the past decade — a strong dollar has been a headwind for US investors holding foreign stocks. But here's the thing: the dollar's strength may be peaking. The Fed has held rates steady at three point six three percent, and the market is pricing in cuts later this year. If the dollar weakens, international dividends get a tailwind. It's a timing question, but the structural argument for geographic diversification remains. Luna: And there's also sector diversification. US dividend payers are heavily tilted toward financials, healthcare, and consumer staples. International dividend payers have more exposure to materials, energy, and telecom. For example, Samsung — it's a tech company but it pays a dividend. You don't get that from Apple. Lucas: Right. Samsung yields around two percent, but it's in a completely different competitive landscape than US tech. And it's a chaebol — the dividend is tied to Korean corporate governance, which has been improving. The Vanguard International Dividend Appreciation ETF, ticker V-I-G-I, is one way to access this. It holds about two hundred stocks globally, excluding the US, with a focus on dividend growth. Luna: Let's talk about the numbers. VYM, the Vanguard High Dividend Yield ETF, is at one sixty-one oh six, up zero point six percent over five days. SCHD, the Schwab US Dividend Equity ETF, is at thirty-two forty, up zero point five percent. Those are solid, but they're 100% US. How does an international dividend ETF compare? Lucas: VIGI has a yield around one point eight percent — lower than VYM, which is closer to three percent. But the dividend growth rate for VIGI has been about seven percent annually over the past five years, compared to about six percent for VYM. So you sacrifice current income for faster growth. In a rising rate environment, which we've had, that growth premium matters because it helps offset the discount rate effect. Luna: And rates are still elevated. The ten-year at four point five four percent is a tough competitor for dividend stocks. If you can get that on a risk-free bond, why take equity risk for a two percent yield? Lucas: That's the million-dollar question. But the answer is that dividend growth — not starting yield — is what drives long-term total return. A stock that grows its dividend at seven percent a year will double its payout in about ten years. A bond's coupon doesn't grow. Over a twenty-year horizon, the dividend grower almost always wins. And international stocks add another layer: they may be priced at a discount that provides a margin of safety. Luna: What about geopolitical risk? Holding stocks in countries with different legal systems, potential tariffs, or even expropriation risk. How do you factor that in? Lucas: It's real. You mitigate it by diversifying across countries, not just sectors. VIGI holds stocks from Japan, Switzerland, the UK, Canada, Australia — about twenty countries total. No single country is more than about twenty percent. You're also getting exposure to companies with global revenue streams, so their fortunes aren't tied to one government. Nestlé sells in almost every country; its Swiss domicile is just a legal address. Luna: So for the average dividend investor who's currently all us, what's the first step? Do you recommend swapping out some VYM for VIGI? Lucas: I wouldn't swap entirely, but I think a ten to twenty percent allocation to international dividend stocks makes sense. You can do it through an ETF like VIGI, or if you want to pick individual stocks, look at companies like Nestlé, Unilever, Samsung, or even some Canadian banks like Toronto-Dominion, which yields about four point five percent. Just be aware of the withholding taxes — some countries take fifteen to thirty percent of your dividend before it hits your account. Luna: That's a hidden cost. But you can often claim a foreign tax credit on your US taxes, so it's not a total loss. Lucas: Exactly. And the key is to think of this as a long-term allocation, not a tactical trade. The data over the past twenty years shows that a sixty-forty us international dividend portfolio had lower volatility than a pure US dividend portfolio, while delivering comparable total returns. That's the kind of risk reduction that helps you sleep at night when the Dow drops eight hundred points. Luna: Speaking of which, the Dow did drop about four hundred points this week. That's less than one percent, but still noticeable. If you'd had that international allocation, you might have been partially cushioned. Lucas: Right. And that's the whole point. You're not trying to outperform every quarter. You're building a cash flow machine that survives different economic regimes. International dividend stocks are one more tool in that toolbox. Luna: You know, Lucas, conversations like this are exactly why I appreciate that this show is ad-free. We can dig into nuance without someone trying to sell us a fund or a trading platform. Lucas: Absolutely. And we get to keep it that way because of listeners who support the show. If you've found these episodes helpful — whether it's thinking about your own portfolio or just understanding the market a little better — you can help us stay independent and ad-free by visiting buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Every bit helps. Luna: Yeah, it's a simple way to say thanks, and it goes right back into producing more of these deep dives. No pressure, but if it's made a difference for you, consider it. Lucas: Alright, back to the numbers. One more thing I want to touch on: the yield on the thirty-year Treasury is at five point zero five percent. That's a psychological barrier. For a long-term investor, that yield is tempting. But remember, a bond's yield is fixed; a dividend can grow. If you buy a thirty-year bond at five percent, your real return is eroded by inflation. A dividend stock with a three percent yield that grows at seven percent will outpace that bond in under a decade. Luna: So the message is: don't let the current bond yield scare you out of equities entirely. Just be smart about geographic diversification. Lucas: Exactly. And that's the takeaway for this episode. International dividend stocks aren't a silver bullet, but they're an underused tool for reducing portfolio risk and maintaining income growth. Whether you use an ETF like VIGI or pick individual names, a small allocation could make a big difference over the next ten years.