What is DIVI? (Pros, Cons, and Strategies)

If you're considering adding dividend ETFs to your portfolio, DIVI (Franklin International Core Dividend Tilt Index ETF) may be worth a look. This ETF offers a unique approach by focusing on international companies that consistently pay dividends, providing a different angle compared to U.S. dividend ETFs. In this post, we will delve into what DIVI is, along with its advantages and disadvantages.

What is DIVI?

DIVI, the Franklin International Core Dividend Tilt Index ETF, is designed to track the performance of the Morningstar® Developed Markets ex-US Dividend Enhanced Select Index℠. This index focuses on international stocks outside the U.S. from developed markets, emphasizing companies that not only pay dividends but also have promising fundamentals.

Key Features of DIVI

• Dividend Concentration: Invests in companies that consistently pay dividends.
• International Focus: Concentrates on developed markets outside the United States.
• Fundamental Screening: Utilizes a methodology that includes various financial health metrics.

The ETF is designed to provide exposure to companies with strong dividend credentials, balancing dividend yield with lower volatility.

DIVI Composition

DIVI primarily includes large-cap companies from developed markets such as Japan, the United Kingdom, and Switzerland. The sectors represented are diverse, including financials, consumer goods, and healthcare, providing balanced exposure across different economic cycles.

Here are a few major holdings within DIVI:

• Nestle SA (Switzerland)
• Roche Holding AG (Switzerland)
• Toyota Motor Corp (Japan)
• Unilever PLC (United Kingdom)

Pros of DIVI

Diversified International Exposure

DIVI offers exposure to developed markets outside the United States, which can be particularly beneficial during periods of U.S. market volatility. This diversification can help lower portfolio risk by spreading investments across different geopolitical and economic environments.

Consistent Dividend Payments

One of the primary appeals of DIVI is its focus on companies that consistently pay dividends. Regular dividend income can provide a cushion during market downturns and contribute to the overall stability of your returns.

Potential for Capital Appreciation

Though primarily focused on dividends, DIVI also includes stocks with potential for capital appreciation. The blend of dividend-paying stocks with growth potential can make it a well-rounded option for long-term investors.

Low Expense Ratio

Compared to other international dividend ETFs, DIVI offers a relatively low expense ratio, which helps maximize net returns. Keeping costs low is crucial, especially for long-term investments where fees can significantly eat into your returns.

Cons of DIVI

Currency Risk

Investing in international stocks introduces currency risk. Fluctuations in foreign exchange rates can impact the returns for U.S. investors, adding an additional layer of volatility. While this can sometimes work in your favor, it can also detract from returns.

Lower Dividend Yield Compared to U.S. ETFs

Compared to some U.S.-focused dividend ETFs, DIVI may offer a lower dividend yield. Investors primarily seeking high dividend income might find other options like JEPI or SCHD more appealing.

Exposure to Geopolitical Risk

Investing in international markets exposes you to geopolitical risks that can impact market performance. Political instability, regulatory changes, or economic sanctions can affect dividend payments and stock prices.

DIVI Investment Strategies

Long-term Investment Strategy

Given its focus on consistent dividend-paying international stocks, DIVI is well-suited for long-term investment horizons. Investors planning to hold their investments for more than 10 years can benefit from the compounding effect of reinvested dividends and potential capital growth.

Diversification Strategy

If your current portfolio is heavily weighted toward U.S. stocks, adding DIVI can enhance diversification. This strategy can mitigate risk and provide exposure to different economic cycles and growth opportunities outside the U.S.

Regular Dividend Reinvestment

To capitalize on the long-term growth potential and dividend payments, consider regularly reinvesting dividends. This method leverages the power of compounding and can help accelerate asset growth over time.

Hedge Against U.S. Market Volatility

Incorporating DIVI can serve as a hedge against U.S. market volatility. Since it focuses on developed international markets, it can provide balance and reduced correlation to U.S.-centric investments, offering some stability during turbulent times.

Conclusion

DIVI (Franklin International Core Dividend Tilt Index ETF) presents a compelling option for investors seeking to diversify their portfolios with international dividend-paying stocks. While it offers several advantages, such as diversified international exposure and consistent dividend payments, it also introduces certain risks like currency fluctuations and geopolitical instability.

For long-term investors, integrating DIVI into a diversified portfolio can be a strategic move, especially when combined with regular dividend reinvestment. As with any investment, it’s essential to weigh the pros and cons carefully and align your strategies with your financial goals and risk tolerance.