With fixed-income and money market assets producing paltry yields, exchange traded funds investors have sought out alternative income-generating assets, such as corporate debt and dividend stocks. However, beyond normal “dividend” stocks, there are also plenty of alternative categories that can provide robust yields.
ETF products have attracted a lot of as income-starved investors piled into U.S. dividend stocks last year. Three out of 10 ETFs with the largest 2011 inflows were based on U.S. dividends, accounting for $8.7 billion in inflows, according to Bloomberg data.
However, the U.S. is only part of the dividend picture. The ETF investment vehicle provides investors with the opportunity to expand outside of the U.S. domestic equities markets and into international waters. According to WisdomTree data, the U.S. only made up 25% of the $1 trillion in dividend payments from 4,000 global stocks last year.
Investors with an international focus may not even realize it but their funds may be producing a surprising amount of yields. ETFs that track international stocks generate high payouts, without specifically screening for dividend paying companies. These funds may not be as obvious since they do not come with the “dividend” appellation.
Country-Specific ETFs
Europe may have been thrown into turmoil as a result of the Eurzone financial debacle, but European companies are offering substantial dividend yields to bring investors back. For instance, the iShares MSCI Spain Index Fund ETF (NYSEArca: EWP) has a 12-month yield of 9.35% and the iShares MSCI Poland Investable Market Index Fund ETF (NYSEArca: EPOL) has a 12-month yield of 4.7%.
However, potential investors still need to be aware of the economic factors at work here, since country-specific ETFs come with significant capital appreciation or depreciation.
Spain, enervated by its bursting property bubble, is at risk of defaulting, but the country has petitioned for a bailout, which will come with severe austerity measures and dampened growth. However, Poland is on the expansion, showing accelerated growth in the fourth quarter on higher investments and increases in exports.