Key Points
The Vanguard International High Dividend Yield ETF buys global stocks it believes will outperform for the next 30 years.
This dividend ETF holds a diversified portfolio of 1,567 stocks.
VYMI pays impressive dividends and is trading at a 43% discount to the S&P 500.
One of my favorite exchange-traded funds (ETFs) that I don't own (for now) is the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI). This intriguing dividend ETF deserves more attention.
VYMI's trailing-12-month dividend yield is 3.68%, which is higher than some of the best dividend index funds. Its price-to-earnings (P/E) ratio of 13.3 makes it about 43% cheaper than the S&P 500 (SNPINDEX: ^GSPC), which is trading at an earnings multiple of 23.4.
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Oh, and VYMI has significantly outperformed the S&P 500 for the past year.
And VYMI might be in the sweet spot for continued gains in the next 30 years. According to Vanguard's market forecast, the model estimates that for the next 30 years, international stocks (global ex-U.S. equities (unhedged)) will outperform U.S. stocks.
A big part of that international outperformance is expected to come from developed markets. Stocks from those more wealthy, advanced economies are forecast to deliver an expected annualized return of 6.2% to 8.2%, while Vanguard expects U.S. equities to deliver annualized returns of only 4.9% to 6.9% for the next 30 years.
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If Vanguard's research is on target, VYMI is well-positioned to capitalize on the trend toward international stocks in developed markets. Let's look at why the Vanguard International High Dividend Yield ETF has been going strong, and why I might like to own it for the next 30 years.
Vanguard International High Dividend Yield ETF (VYMI): 1,567 stocks, mostly developed markets
Some dividend ETFs hold a relatively small number of stocks, or only hold stocks from one country. The Vanguard International High Dividend Yield ETF is much more diversified than that. It holds a portfolio of 1,567 stocks from 45 countries. About 22% of the fund's holdings are in emerging market stocks. The rest are mostly from developed markets such as Japan (12.2% of the fund), the United Kingdom (11%), Canada (8.8%), Australia (7.2%), and Switzerland (7.2%).
Why will VYMI outperform U.S. stocks for the next 30 years? There's no guarantee that it will. Maybe American stocks will keep beating the world over the long run. But if you are worried that AI is a bubble, if you feel like U.S. tech stocks can't possibly keep up their strong run of growth, if you believe the rest of the world is due to take its turn as the "best" place to invest for a while ... then this international stock ETF could be a good choice for long-term investors.
How VYMI could be a big winner from AI
Even if AI is not a bubble, VYMI could be a good investment. That's because one big theory on what's going to happen next with AI is that the biggest gains from new AI tools will not necessarily go to U.S. growth stocks or AI hyperscalers. Instead, the biggest profit gains and productivity boosts from the future of AI might happen all over the economy -- in all kinds of companies and industries, all over the world. That could include international banks, pharmaceutical companies, auto manufacturers, and consumer staples companies.
If AI is a rising tide that lifts all boats, some of the more "boring" and financially steady industries -- which tend to pay strong dividends -- might ultimately benefit the most. And those future gains aren't all priced in yet. VYMI is still cheap based on its P/E ratio. This dividend ETF is worth a look.
Ben Gran has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.