Adding stocks in developed markets outside the U.S. that are cheaper and pay higher dividends can make it easier for U.S. investors to ride through volatility in the AI trade
These are three examples of companies in developed markets outside the U.S. that pass Franklin's screens for high dividend yields and low volatility for prices and earnings.
This has been a good year for stocks, but recent jitters for companies spending heavily on the artificial-intelligence buildout and other concerns in the world of Big Tech financing might cause you to reconsider how much exposure you have to the top-heavy S&P 500.
It turns out that stocks in developed markets outside the U.S. remain bargain-priced in comparison. And if you dig a little further, you can cut your portfolio risk and boost returns while still participating in the AI trend.
The S&P 500 SPX is nearly 40% concentrated to its largest 10 companies by market capitalization. The top five - Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL) (GOOG) and Amazon (AMZN) - make up 29.4% of the portfolio of the State Street SPDR S&P 500 ETF Trust SPY.
So an argument can be made that your S&P 500 index fund isn't as diversified as its name makes it out to be. Then again, there is no denying that the U.S. large-cap benchmark index has been a strong performer during this long bull market.
The broad case for value abroad
The S&P 500 returned 11.8% for the first 10 months of 2026 toward its fourth straight year of gains, which would be the longest such streak since the five-year stretch ending in 2007. Meanwhile, the MSCI EAFE Index of 21 developed markets excluding the U.S. and Canada returned 12.4%, both with dividends reinvested.
Those similar returns have been driven by earnings growth. The forward price-to-earnings ratio for the S&P 500, based on weighted rolling consensus 12-month earnings-per-share estimates among analysts polled by FactSet, has declined to 18.5 from 22.2 at the end of 2025, as earnings estimates have risen more quickly than share prices. The same thing can be said for the iShares MSCI EAFE ETF EFA, which tracks the MSCI EAFE Index. The exchange-traded fund's forward P/E has declined to 14.4 from 15.5 at the end of 2025, according to FactSet.
By that measure, the stocks in developed markets outside the U.S. as a group are trading at a 28% discount to U.S. large-cap stocks.
But we can take this idea further, with a screen for low volatility. You might be familiar with the concept of isolating stocks that have shown lower price swings than a benchmark index, but in the case of the $6.4 billion Franklin International Low Volatility High Dividend Index ETF LVHI, the concept is also tied to corporate earnings.
LVHI has a forward P/E of 12.4 and has returned 20.6% this year, according to FactSet. The fund quotes a 30-day yield of 3.13% and distributes dividends quarterly. In comparison, the S&P 500 has a weighted dividend yield of 1.11%, according to FactSet.
LVHI is rated five stars (the highest rating) within Morningstar's U.S. Fund Foreign Large Value investment category. It holds 198 stocks as it tracks an index designed by Franklin to identify stocks in developed markets outside the U.S. with relatively high dividend payouts, as well as low volatility for profits and stock-price movement.
While LVHI has outperformed the S&P 500 this year, Jeff Silverman, the head of advisory solutions for Franklin Templeton Investment Solutions, acknowledged that investors can continue to be well-served with heavy exposure to Big Tech through the S&P 500.
"International allocation might lag as U.S. equities outperform, particularly when it is a tech-driven rally," he said during an interview with MarketWatch.
He said that adding exposure to lower-risk stocks outside the U.S. can make it "easier for investors to stay invested when markets are turbulent."
"Developed international companies have traditionally relied on dividends" to deploy excess capital, rather than stock buybacks, he said. "This forces management to be disciplined" as companies try to avoid cutting dividend payouts, he added.
He also said that the discounted valuation for stocks held by LVHI made for a possibility of seeing valuations rise via price increases, as investors warm to stocks outside the U.S.
When asked where investors might find particular values for dividend stocks in developed markets outside the U.S., Silverman said that in Japan, "corporate-governance reforms have enhanced efficiency and built dividend opportunities for investors." He also said that in Singapore, "equity dividend yields are around 4% - nearly twice what you get for broader dividend yields in developed markets."
Six dividend-stock examples
When asked for examples of stocks held by LVHI that feature attractive dividend yields, as well as low volatility for earnings and price movement, Silverman named six companies. The fund holds locally listed shares, but for Canadian Natural Resources (CA:CNQ), there is also a U.S. listing (CNQ). For the remaining five stocks, there are American depositary receipts available for U.S. investors.
Company U.S. ticker or ADR Country Dividend yield Forward P/E 2026 total return Canadian Natural Resources CNQ Canada 3.21% 13.2 70.6% Novartis NVS Switzerland 2.95% 16.2 20.2% Mitsubishi Corp. MTSUY Japan 2.29% 14.5 34.7% DBS Group Holdings DBSDY Singapore 3.73% 15.7 34.8% United Overseas Bank UOVEY Singapore 3.88% 12.2 23.3% Oversea-Chinese Banking Corp. OVCHY Singapore 3.06% 16.1 53.8% Source: LSEG
The dividend yields, P/E and returns are all for the U.S. tickers or ADRs.
Click on the tickers for more about each company.
-Philip van Doorn
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