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Rob Carrick's 2017 ETF Buyer's Guide: Foreign dividend funds

We have a fine crop of Canadian dividend stocks, but you're missing out as an investor if you don't consider U.S. and international dividend payers as well.

In the sixth and final instalment of the 2017 Globe and Mail ETF Buyer's Guide, we look at dividend and income funds that hold stocks from U.S., global and international (outside North America) markets. Results from these funds over the past one- and three-year periods have been exceptional in many cases.

The big advantage of Canadian dividend stocks is that in non-registered accounts, their cash payouts are taxed more lightly than regular income thanks to the dividend-tax credit. There are tax implications from receiving foreign dividends through ETFs in both taxable and registered accounts – consult our ETF tax primer for details. The case for foreign dividend stocks is that they can bulk up the investment income you generate from your portfolio and produce solid total returns (dividends plus share-price returns).

An important detail for investors considering these ETFs is that many come in hedged and unhedged versions. Currency hedging smooths the distortions that currency fluctuations have on investment returns. A sinking Canadian dollar means unhedged U.S. and international ETFs will outperform those with hedging. With a rising dollar, hedged funds will outperform. If you're investing for 10-plus years, both hedged and unhedged funds should perform similarly.

Here's a quick summary of the previous instalments of the ETF Buyer's Guide:

Now for some explanations of some of the terms you'll find in the guide:

Assets: Shown to give you a sense of how interested other investors are in a fund.

Management expense ratio (MER): The MER is the main cost of owning an ETF on an ongoing basis; published returns are shown on an after-fee basis.

Trading expense ratio (TER): The TER is the cost of trading commissions racked up by the managers of an ETF as they shuffle the portfolio to keep it in line with a target index. Add the TER to the MER for a fuller picture of a fund's cost. Note that some ETFs do so little trading that their TERs round down to zero.

Dividend yield: Supplied by Globeinvestor.com and based on recent monthly or quarterly payouts and the latest share price.

Average daily trading volume: With one exception, ETFs listed here have generated recent trading volumes of at least 5,000 shares a day on average on the TSX. This level of trading is sufficient to indicate a fund has at least something of a following and is not an orphan.

Top sector weightings: Here's where you'll notice how well foreign dividend ETFs can complement Canadian equity ETFs, which are typically dominated by financials and resource stocks; many have significant weightings in sectors such as tech and health care, which are underrepresented in the Canadian market.

Returns: ETF companies typically disclose total returns, or share-price change plus dividends or distributions.

Click here to download an Excel version of this table

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