At a time when share prices are in retreat, generally, why not focus on something that works: dividend stocks? That's what $112.8 million EuroPac International Dividend Income Fund (EPDIX) does. And it has worked.
The portfolio is among the small group of stock funds that has outperformed the broad market in the form of the S&P 500.
The fund is another type of rarity as well: it is in positive territory so far this year, up 0.57% vs. a 20.43% setback by the S&P 500, according to Morningstar Direct, going into Wednesday.
The fund's trailing 12-month (TTM) yield is 2.16%. The popular $243.3 billion Vanguard 500 Index Fund, tracking the broad market benchmark, has a TTM dividend yield of 1.34%.
Dividend Stocks
The fund seeks companies that pay or are likely to pay high, sustainable distributions relative to their peers. And it wants dividends that grow over time.
Fund managers Jim Nelson and Patrick Rien also aim for dividend stocks with attractive valuations. Further, the managers focus their hunt for dividend stocks in countries they think have the best fundamentals. They look for factors such as trade surpluses, high real interest rates and strong GDP growth estimates.
Parent firm Euro Pacific Asset Management sees the U.S. as the wrong place to look for stocks with traits like those. "Based on the irresponsible policies of the Federal Reserve and the continued failure of the United States to put our fiscal house in order, we believe that the U.S. dollar is at risk of falling relative to currencies of more economically vibrant nations," Euro Pacific's website said. "True wealth is created through savings, capital investment, and productivity growth; not debt fueled consumption."
Geographic Distribution
Still, for the record, the fund's dividend stocks and other holdings are not entirely non-U.S. As of March 31, 7.5% were based in the U.S. The largest non-U.S. domicile was Canada, with 22.1%. That was followed by Britain with 18.8%, France at 9.8% and Germany with 7.0%.
Nor are holdings unfamiliar to U.S. shareholders. Top stakes include Barrick Gold, cigarette makers British American Tobacco and Philip Morris International and gold miner Newmont.
Additional top stakes include integrated oil and gas giants BP and Shell ADRs, maker of medical and crop protection products Bayer, and carmaker Mercedes-Benz Group.
Dividend Stocks With CAN SLIM Traits
And several positions have CAN SLIM traits that IBD readers look for. BP and Shell have IBD Composite Ratings of 98 and 97.
A Composite Rating of 90 means that a stock is in the top 10% of all stocks on a number of technical and fundamental factors, including both price performance and earnings. Watch for stocks that have 90-plus Composite Ratings and are forming bases or are in follow-on buy areas. That way, you spot the best-positioned stocks before they start big price runs. Look up a stock's Composite Rating at IBD Stock Checkup.
British American, Philip Morris and Barrick have Composite Ratings in the high 80s.
Hefty Dividend Yields
Further, several of those and other holdings are dividend stocks with hefty dividend yields. British American's is 6.9%. Philip Morris' is 5.1%. BP's is 4.6%. Newmont's is 3.4%. Barrick's is 2.4%. Shell's is 1.9%.
ADRs of Brazilian mining firm Vale have a whopping dividend yield of 18.5%. ADRs of Chilean beverage maker Compania Cervecerias have a dividend yield of 10.0%. ADS' of South Korean wireless voice services provider SK Telecom have a dividend yield of 6.8%.
Canadian telecom services provider BCE has a 6.0% dividend yield.
Bank of Nova Scotia has a 5.3% dividend yield.
France-based oil and gas integrated company TotalEnergies ADRs have a 4.6% dividend yield.
Still, the portfolio is not wall-to-wall high yield dividend stocks. Mercedes and Bayer have 0.0% dividend yields.
Benefits Of Foreign Dividend Stocks
Overall, European stocks pay higher dividend yields than U.S. stocks, says Morningstar analyst Gregg Wolper. And many pay dividends in their own currencies. That can be valuable to U.S. shareholders if the dollar sinks.
The fund has been an outperformer over the past year. But what happens if the market rotates back in favor of growth stocks and growth funds? The fund's total return has outperformed the S&P 500 one calendar year, 2012, since its 2010 inception. But remember, this fund says income is its primary goal. Capital appreciation is secondary.
The fund measures itself against the S&P International Dividend Opportunities Index. You can buy A-class shares (EPDPX) of the fund for a minimum initial investment of $2,500.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
