Theme 3: Consumer Staples
The largest single sector over-weight of EM Dividend Growth relative to EM Dividend Yield is Consumer Staples—not surprising, as the sector has a P/E ratio above 20.0x.4 Strategies hunting for value in EM Equities would do well to avoid this sector, but as of April 30, 2014, EM Dividend Growth’s stocks in this sector had an ROE that was approximately twice that of EM Equities. A similar story held true for ROA.5 This was a greater than 16.0% over-weight for EM Dividend Growth versus EM Dividend Yield, and a nearly 10% over-weight for EM Dividend Growth versus EM Equities.
Conclusion: Not All Dividend Payers Are Created Equal
While some of the largest payers of cash dividends in emerging markets are Chinese financials and Russian energy firms, these aren’t the only payers of cash dividends in this region. EM Dividend Growth provides a very interesting contrast in exposure to EM Dividend Yield, and we believe it could be an interesting avenue through which to consider risk mitigation through a focus on higher-quality, higher-potential-growth companies.
1Source: Bloomberg, with data covering 12/31/13 to 4/30/14
2Source:Bloomberg, with data as of period 12/31/12 to 12/31/13
3Source: MSCI, with data covering period 12/31/13 to 4/30/14
4Refers to the P/E Ratio of the MSCI Consumer Staples Index as of 4/30/14. Source: Bloomberg
5Source: Bloomberg
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.
Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.