Eurozone exchange traded fund investors may soon enjoy enhanced returns and value as European companies begin adopting increased dividends and share buybacks.
European stocks already offer more attractive yields than the U.S. For instance, the broad Vanguard FTSE Europe ETF (NYSEArca: VGK) has a 3.29% 12-month yield. Additionally, the iShares MSCI EMU ETF (NYSEArca: EZU) and the SPDR EURO STOXX 50 (NYSEArca: FEZ), which both focus on Eurozone countries, have a 2.72% and 3.38% 12-month yield, respectively. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY) has a 1.89% 12-month yield.
Additionally, the euro-currency hedged WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) comes with a slightly lower 1.78% 12-month yield, while the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU) has a 3.95% 12-month yield. It should be noted that DBEU includes U.K. and Switzerland exposure.
Looking ahead, Europe ETF investors could enjoy even greater returns. Companies across Europe could begin raising cash payouts as the economic outlook improves, corporations see healthier balance sheets and companies enjoy historically low borrowing conditions from quantitative easing, reports Joel Lewin for the Financial Times.
“Cash on balance sheets is at a record high and financing conditions are very favourable,” Emmanuel Cau, equity strategist at JPMorgan, said in the FT article. “We think there’s going to be more shareholder friendly behavior. That’s going to heighten the attractiveness of European equities.”
Investors are pressuring European countries to send more cash to shareholders as U.S. companies have engaged in hefty dividend hikes and record stock repurchases, rewarding investors with over half of operating cash flows – about 28% was allocated to buybacks and 24% to dividends. In contrast, the overall figure was only one-third for European stock investors.