Emerging market dividend ETFs have the twin benefits of higher yields and exposure to safer, more established companies in notoriously volatile developing markets.
“The emerging-markets story is all about growth, the red-hot kind. Paradoxically, the best way to benefit from economic growth may be to hold boring, dividend-paying stocks,” Morningstar analyst Samuel Lee writes in the firm’s September ETF newsletter.
Investing in emerging markets can be risky due to less regulation, fewer shareholder protections and inefficient management.
“Holding dividend-payers is one of the few ways individual investors can mitigate these issues,” Lee said.
Emerging market dividend ETFs include WisdomTree Emerging Markets Equity Income (NYSEArca: DEM), SPDR S&P Emerging Markets Dividend (NYSEArca: EDIV), EGShares Low Volatility Emerging Markets Dividend ETF (NYSEArca: HILO) and iShares Emerging Markets Dividend Fund (NYSEArca: DVYE).
“There are plenty of good options out there,” Morningstar’s Lee wrote.
“The grandfather of emerging markets exchange traded funds, WisdomTree Emerging Markets Equity Income (DEM), is our favorite way to reap dividends from this high-growth market. It levies a reasonable 0.63% expense ratio, and as the biggest fund of its type, it’s also the cheapest to trade,” he suggests.
The analyst notes the cheapest option is iShares Emerging Markets Dividend Fund (DVYE), which has an expense ratio of 0.49%. The ETF pays a 30-day SEC yield of 3.75%, according to manager BlackRock.
“However, it weights stocks by their yield, ramping up income, but at the cost of quality,” Lee said.
WisdomTree Emerging Markets Equity Income