International High Dividend Stocks Turning The Relative Corner, DTH A Buy

There has been a pause in the usual outperformance among low-yielding mega-cap growth stocks. While the Magnificent Seven ETF (MAGS) notched an all-time high at points last week, high-yield plays, and even foreign equities have shown signs of relative life compared to the S&P 500 in the last two months. The market’s broadening hasn’t come about where most investors were looking – small caps – but has been seen in other areas despite emerging macro headwinds.

I have a buy rating on the WisdomTree International High Dividend Fund ETF (NYSEARCA:DTH). The ETF’s construction process is robust while it currently yields north of 5% at a time when interest rate cuts could be on the horizon.

DTH Outperforming EFA Since Early March, Beating SPY Since Early February

According to the issuer, DTH seeks to track the investment results of high-dividend-yielding companies in the developed world ex the US and Canada. Investors use the fund to target exposure to high dividend-yielding companies in the developed international world, ex-U.S. and Canada, and can complement or replace developed international large-cap value and dividend-oriented active and passive strategies.

The US Dollar Index notched fresh multi-month highs last week, eclipsing the 106 mark amid weakness in the euro, pound, and yen. That’s often problematic for foreign stocks, but DTH has held up well. I would encourage investors to also consider the WisdomTree International Hedged Quality Dividend Growth Fund ETF (IHDG) if continued upside momentum in the greenback is expected.

US Dollar Index Jumps To 2024 Highs

DTH is a moderate-sized ETF with $2.4 billion in assets under management as of April 12, 2024, and it has a moderate 0.58% annual expense ratio. Share-price momentum has been solid in the last year, earning DTH a B ETF Grade by Seeking Alpha. Risk metrics are favorable given the portfolio’s diversification and generally low annual standard deviation. Finally, liquidity is healthy with DTH given an average daily volume of more than 300,000 shares and a 30-day median bid/ask spread of 10 basis points. Using limit orders during less liquid periods of the trading day is encouraged, though.

The WisdomTree International High Dividend Index, which DTH tracks, comprises the top 30% of companies ranked by dividend yield from the WisdomTree International Equity Index. The issuer’s proprietary developed international universe is crafted through a set of main criteria. First, it assesses companies incorporated or listed in specific regions, including Japan, 15 European countries, Israel, Australia, Hong Kong, and Singapore. Next, it focuses on companies that pay regular cash dividends of at least $5 million. Third, the index screens out firms based on a composite risk filter, considering factors like profitability, momentum, and dividend yield to ensure dividend sustainability.

Companies also need to meet trading volume requirements, trading at least 250,000 shares per month for six months and having a median daily dollar volume of at least $100,000 for three months. Finally, a minimum market cap of $100 million is required for index inclusion. After all these screens, eligible international dividend payers are fundamentally weighted based on regular cash dividends paid, adjusted for a risk screen of dividend sustainability.

As of the middle of last year, DTH’s price-to-earnings ratio was low at 7.9 on a trailing 12-month basis. Contrast that with the S&P 500’s 22.6 multiple. Today, WisdomTree notes that the forward P/E is 9.5, still 11 turns cheaper than the S&P 500.

High Yield Equities Cheap Compared To The S&P 500

The 2-star, Bronze-rated fund by Morningstar plots in the upper-left corner of the style box given its high large-cap value orientation. Its yield factor is about the highest you’ll find in the equity ETF space while momentum is middle of the road as of mid-April. Earnings quality is to the weak side, however, since there’s low exposure to secular growth firms. DTH offers investors some access to small and mid-cap equities, too.

DTH: Portfolio & Factor Profiles

DTH is an interesting idea today as the yield spread between the ETF and the EAFE index is at historically high levels, per WisdomTree. While dividends are not everything, it’s a possible sign that high-yield stocks are a relative bargain compared to the broader ex-US market.

Trailing 12-Month Dividend Yield For DTH Has Been Increasing Relative To The MSCI EAFE Index

As it stands, DTH has a very high weighting in the cyclical Financials sector. With more bank earnings at home and abroad due out in the back half of April, a handful of the fund’s largest positions could see some volatility – recall that JPMorgan Chase (JPM) endured its worst session since June 2020 last Friday.

DTH also has significant overweights to a pair of sectors that have recently outperformed: Utilities and Energy. With just a 0.8% weight to Information Technology, expect the ETF’s returns to deviate significantly from those of the S&P 500. Finally, DTH has diversified country exposure with UK stocks being the largest group.

DTH Holdings, Sector, Country Breakdowns

DTH has increased its dividend amount in each of the previous three years. I expect 2024’s sum to rival the 2014 high based on the growing number of dividend increase announcements, according to data from Wall Street Horizon.

DTH Annual Dividend Trends

Global Dividend Increases Thus Far In 2024

Seasonally, DTH tends to rally nicely in April – it has historically been the best month of the year. DTH often struggles in May and June before a rally to start the second half.

DTH: Bullish April Trends

The Technical Take

With a low valuation, a high yield, and value exposure, DTH’s technical view leaves something to be desired. Notice in the chart below that the ETF remains under key resistance in the $41 to $42.50 zone. This range is key for the bulls to reclaim. Until they do, DTH is in a precarious position with congestion between $35 to $41 which will likely be an ongoing battle zone between the bulls and the bears.

Also take a look at the RSI momentum oscillator at the top of the graph – it printed a bearish divergence to price at the most recent rebound high just under the $40 mark. It suggests that a move back down to the rising long-term 200-day moving average could be in the works. I see support near $36 with the Q4 2023 low of $34.66 offering another potential support layer.

Overall, I would like to see DTH get through the early 2020 peak to assert that a bull market is back in play.

DTH: Overhead Resistance In Play, Bearish RSI Divergence

The Bottom Line

I have a buy rating on DTH. Though its absolute momentum is not particularly great, there are signs of emerging relative strength since mid-February. Its high exposure to Energy, Utilities, and even some Materials stocks could bode well for performance in 2024 as macro risks come about.