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

When planning for retirement or seeking steady passive income, considering ETFs can be a wise choice. One such ETF that has caught the attention of many investors is PID (Invesco International Dividend Achievers™ ETF). This fund focuses on international companies that consistently deliver dividends. In this blog post, we'll delve into what PID is, its benefits and drawbacks, and various strategies for using it as part of your investment portfolio.

What is PID?

PID, short for Invesco International Dividend Achievers™ ETF, is a prominent dividend ETF in the market that focuses on international stocks. This ETF aims to provide investors with exposure to a diversified portfolio of internationally based companies known for their strong dividend performance.

PID tracks the NASDAQ International Dividend Achievers™ Index, which includes companies that have consistently increased their dividend payments over time.

Key Features of PID

• Companies with at least five consecutive years of increasing annual dividend: This indicates strong and stable financial health.
• Focus on non-U.S. companies: PID provides exposure to international markets, diversifying beyond U.S-based investments.
• Stocks chosen based on robust financial metrics: The ETF filters companies not just on dividend yield but also on metrics like earnings growth, payout ratios, etc.

PID Composition

PID includes a variety of sectors, ensuring diversification. Prominent sectors include financials, consumer staples, and industrials. This ETF houses companies from all over the world, such as Nestle SA (NESN), Toronto-Dominion Bank (TD), and Unilever NV (UNIA).

The strategy ensures that investors are exposed to large multinational corporations known for their stable performance and generous dividend policies.

Pros of PID

Diversification

PID provides exposure to international markets, which is a critical aspect of a well-rounded investment strategy. It reduces the risk associated with market volatility in any single region by spreading investments globally.

Dividend Growth

The primary reason investors are attracted to PID is its focus on dividend growth. Companies in the ETF must have a history of at least five consecutive years of increasing dividends. This builds investor confidence in the reliability of dividend income over the long term.

Moderate Volatility

By investing in stable, dividend-paying international companies, PID tends to be less volatile compared to ETFs focused on high-growth or speculative stocks. This makes PID an attractive option for those looking for more predictable returns and less risk.

Cons of PID

Foreign Exchange Risk

One downside to investing in PID is exposure to foreign exchange risk. Currency fluctuations can significantly impact the fund's returns. Investors must consider this risk, especially in volatile currency environments.

Expense Ratio

PID has a higher expense ratio compared to some domestic dividend ETFs. The annual expense ratio of PID stands at 0.55%, which might deter some cost-sensitive investors.

Dividend Yield

While PID does focus on companies that increase their dividends, its overall dividend yield might still be lower compared to other high-yield international ETFs. This makes it less appealing to investors prioritizing immediate high dividend returns.

PID Investment Strategies

Given the focus on international dividend growth stocks, PID can be an excellent addition to a diversified portfolio. Here are some strategies to consider:

Long-term Investment Strategy

PID is best suited for a long-term investment horizon. Its focus on companies that consistently grow their dividends makes it ideal for investors aiming to build a stable income stream over the years. A holding period of at least 5-10 years is recommended to leverage the dividend growth and compounding benefits.

Geographic Diversification

Utilize PID to diversify your portfolio geographically. By adding PID to a portfolio heavily weighted in U.S. stocks, investors can mitigate risks associated with regional market downturns.

Retirement Investment

PID can be a smart choice for retirement income planning. The focus on steady, growing dividends from financially sound companies makes it a reliable source of passive income during retirement years. Consider reinvesting the dividends in the early years to compound growth and switching to a withdrawal strategy as you near or enter retirement.

Combining with High-Yield ETFs

Combining PID with other high-yield ETFs can balance your portfolio. While PID provides stable, growing dividends, other high-yield ETFs like JEPI might offer higher immediate returns. This dual approach can cater to both short and long-term income goals.

Conclusion

PID is a well-regarded ETF for investors seeking international exposure and steady dividend growth. While there are considerations like foreign exchange risk and a slightly higher expense ratio, the benefits of diversification and dividend consistency make PID a strong candidate for long-term investment portfolios. By following thoughtful strategies, such as long-term holding, reinvesting dividends, and mixing with other high-yield options, you can maximize the potential of PID to meet your financial goals.