Why International High Dividend Equities Are Outperforming the S&P 500 in 2025: The Case for VYMI

The year 2025 has brought renewed focus to the role of dividends in portfolio construction, as investors navigate a market landscape increasingly defined by volatility and yield scarcity. Against this backdrop, the Vanguard International High Dividend Yield ETF (VYMI) has emerged as a compelling alternative to the U.S.-centric S&P 500, leveraging sector diversification, a superior yield advantage, and structural stability to deliver income resilience. For income-focused investors, VYMI's 4.45% trailing 12-month dividend yield, robust exposure to value-oriented sectors, and Morningstar's Silver Medalist rating make it a standout choice in a crowded equity field.

The Yield Advantage: VYMI vs. the S&P 500

The S&P 500's dividend yield, currently hovering around 1.8%, pales in comparison to VYMI's 4.45% trailing yield (as of early 2025). This gap reflects a broader market dynamic: U.S. growth stocks, which dominate the S&P 500, have increasingly prioritized reinvestment over shareholder payouts. Meanwhile, international high-dividend equities, tracked by VYMI, are often tied to mature, cash-rich firms in sectors like financials and energy—industries less prone to the boom-and-bust cycles of tech or consumer discretionary.

While forward yields for VYMI have dipped slightly to 2.99% in June 2025 due to market expectations, its historical performance underscores its ability to outpace U.S. benchmarks. The ETF's yield advantage is further amplified by its focus on stable, income-generating sectors, which are underrepresented in the S&P 500.

Sector Diversification: Anchored in Value, Not Growth

VYMI's success stems from its sector allocation strategy, which tilts toward financial services (36.18%) and energy (9.76%)—sectors that have historically delivered steady dividends and lower volatility. These allocations contrast sharply with the S&P 500's concentration in growth-heavy sectors like technology (28%) and communication services (15%), which face heightened regulatory and macroeconomic risks in 2025.

By emphasizing value-oriented sectors, VYMI mitigates exposure to the “growth trap”—a phenomenon where overvalued tech stocks face earnings downgrades or regulatory headwinds. For example, energy firms in VYMI's portfolio, such as Shell and Toyota, benefit from global energy transitions and supply chain stability, while financials like RBC and Novartis capitalize on rising interest rates and stable demand for banking services.

Morningstar's Silver Rating: A Testament to Risk-Adjusted Performance

Morningstar's Silver Medalist rating (maintained through late 2024) reflects VYMI's low cost (0.22%), diversified holdings (over 1,000 stocks), and consistent risk management. Unlike many active funds, VYMI avoids overconcentration in any single holding (top 10 holdings account for just 15% of assets), reducing idiosyncratic risk. This structural rigor has allowed the ETF to outperform 80% of its peer group in risk-adjusted returns over the past five years.

The Case for International Diversification in 2025

While U.S. markets remain a core component of most portfolios, VYMI's global exposure offers critical diversification benefits. The S&P 500's U.S.-centric bias leaves investors vulnerable to domestic economic headwinds, such as inflation or Federal Reserve policy shifts. In contrast, VYMI's international mandate spreads risk across 40+ countries, including regions like Europe and Asia, where central banks are less aggressive in tightening monetary policy.

Moreover, dividend stability in international markets is often supported by corporate governance norms that prioritize shareholder returns. For instance, European banks and utilities have long maintained disciplined payout policies, even during recessions—a stark contrast to the S&P 500's reliance on cyclical growth stocks.

Investment Implications for 2025

For income-focused investors, VYMI's 4.45% trailing yield, combined with its value-driven sector exposure and Morningstar validation, positions it as a core holding in defensive portfolios. The ETF's low correlation to growth equities also makes it an effective hedge against S&P 500 volatility.

However, risk-aware investors should note:
1. Currency fluctuations: VYMI's international holdings expose investors to forex volatility, though this risk is partially mitigated by diversification.
2. Sector concentration: Financials and energy, while stable, may underperform in scenarios like a prolonged rate cut cycle or geopolitical conflict.

Conclusion: A Dividend-Driven Strategy for 2025 and Beyond

In a year marked by yield scarcity and growth uncertainty, VYMI offers a compelling solution for investors seeking income resilience. Its sector diversification, superior yield profile, and Morningstar-backed risk management make it a standout alternative to the S&P 500's growth-centric bias. For those prioritizing stability and dividend consistency, allocating to VYMI in tandem with a diversified equity core could prove a prudent strategy in 2025 and beyond.

In an era of market turbulence, VYMI's blend of yield, diversification, and structural rigor is a reminder that value—and dividends—are still central to long-term wealth creation.