The international stock market’s momentum of 2025 seems poised to continue this year. A prime example is the Vanguard Total International Stock Index Fund ETF, also known as (VXUS +0.34%). This well-known ETF has risen by 9.23% so far this year, while the S&P 500 has seen a slight dip of 0.14%.

For those focused on dividend income, there’s good news. Investors are not missing out on the global equity recovery. The Vanguard International High Dividend Yield ETF, marked as (Vimi +0.10%), stands out internationally and is notable alongside the Vanguard High Dividend Yield ETF, which is listed as (VYM +0.30%)—both strong players in the dividend ETF space.

International ETFs are gaining traction, with this particular fund managing assets of $18.2 billion, making it the largest international dividend ETF and ranking as the 10th largest overall in the category. While these stats are commendable, what’s crucial is that the Vanguard International Dividend ETF has significantly outperformed both its domestic peers and other non-US funds over the last three years. The big question, though, is whether this upward trend will persist this year. There’s a possibility—here’s what might support that.

Discover Diversification and Value with This ETF

A primary driver for investing in non-US stocks is, you guessed it, diversification. This particular international ETF achieves effective diversification by providing exposure to both developed and emerging market equities. It’s worth noting that while diversification doesn’t ensure superior performance, it’s comforting to know that the Vanguard International Dividend ETF could offer growth potential from various regions.

Moreover, for those considering the Vanguard International High Dividend Yield ETF, geographic diversification is just the starting point of its advantages. Several factors could work in this ETF’s favor in 2026. To illustrate, last year saw the dollar underperform compared to other major currencies, yet it’s still viewed as overvalued against some competitors. This hints at potential further depreciation, which could enhance dollar-denominated profits—beneficial for foreign companies catering to the U.S. market.

Additionally, the ETF isn’t just proving to be a value play because it pays dividends. Even though international stocks did better than their U.S. counterparts last year, they still appear to be comparatively attractive from a valuation standpoint. So, investors might not have to overextend themselves to leverage the advantages of this ETF.

It seems there are more reasons to be optimistic about this fund’s prospects for 2026, particularly concerning its sector allocation. A significant portion of the fund—over half—is dedicated to financial services and industrial stocks. Not all the stocks are European, but across the Atlantic, bank stocks appear undervalued, and heightened defense spending in NATO countries is favorable for European industrial stocks.

Speaking of Europe…

This international dividend ETF contains 1,535 stocks, with 43.6% hailing from Europe. There are multiple factors contributing to this allocation. Many of these stocks boast admirable dividend yields, with payout ratios that are lower than those of similar companies in the U.S., indicating a potential for growth in dividends. Furthermore, the 47 stocks are part of the MSCI Europe Dividend Masters Index, which requires companies to consistently pay high dividends for a decade—the same stocks featured in the Vanguard ETF.

All of these advantages come with a remarkably low annual fee of just 0.07%, meaning you’d pay only $7 for every $10,000 invested.