International Dividend ETFs
January 20th at 6:15am by Tom Lydon
Dividend stocks and exchange traded funds have come back into focus as the fiscal cliff is behind us and tax rates on qualified dividend income didn’t rise as much as some had feared for U.S. investors.
However, the top-performing dividend ETFs in 2012 tracked international equity indices rather than U.S. stocks.
“It all comes down to when you get into the market, in terms of what the dividend yield was at the time, the growth rate of dividends over time, and the change in dividend valuations. Over the last 10 years, you’ve seen emerging dividends grew 15.3 percent a year while U.S. dividends increased by 6.7 percent in the same time frame. We think there is better value in emerging market stock dividends today,” Jeremy Schwartz, director of research at Wisdom Tree, said in a recent report. [Growth and Yield with Small-Cap Dividend ETFs]
“Dividend ETFs have enjoyed a spate of popularity these last few years as investors seek the cushion of yield and some diversity in their portfolios. There are now about 50 dividend ETFs available in many, many variations, based on equity indexes that may include geographic region, country specific, market cap weighted, fundamentally weighted, yield weighted, and other various yield and/or income methodologies,” John Peter wrote for Seeking Alpha.
Surprisingly, the top performing dividend ETF in 2012 tracked European small-cap companies. After the debt woes in several European countries, it is interesting that some areas of Europe made a comeback, namely small-cap companies. The WisdomTree Europe Small Cap Dividend Fund (NYSEArca: DFE) comes in number one, returning 31%. [Special Report: Surveying the Dividend ETF Landscape]
The WisdomTree International Small Cap Dividend Fund (NYSEArca: DLS) and the WisdomTree Emerging Markets Small Cap Dividend Fund (NYSEArca: DGS) both returned 24% in 2012. In fourth place, WisdomTree International Mid Cap Dividend Fund (NYSEArca: DIM) returned 21%. [International ETFs That Dodge Europe]
It is important to note that the same ETFs or areas of the market rarely outperform for a couple of years back-to-back. However, a glimpse at what took shape at the end of 2012 is a good starting point for investors that are ready to get off the sidelines, and into the market, in the new year. [Death of Dividend ETFs Greatly Exaggerated]
Big banks have pushed deposit rates toward zero and other safe-haven fixed-income investments have lowered any yield generated, leaving investors to find alternatives to generate the income they seek. Dividend ETFs should continue to produce desirable results in 2013, especially due to their favorable tax implications and low costs.
WisdomTree Europe Small Cap Dividend Fund
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.