Emerging markets are increasingly becoming an important part of the dividend conversation and for many investors, that conversation focuses on exchange traded funds dedicated to developing world dividends.
That scenario is not surprising. Last year, emerging markets companies accounted for $1 of every $7 paid in dividends and payouts in developing economies have more than doubled over the past several years. Emerging markets dividends are expected to rise 6% this year to $238.8 billion. [ETFs for EM Dividend Growth]
Much of that growth is expected to come courtesy of the BRIC nations, specifically Brazil, China and Russia. Brazil is expected to deliver the largest dividend growth among emerging markets this year. China is already the largest dividend payer in dollar terms among developing economies while Russia, for all of its misgivings, is one of the fastest-growing dividend countries in the world. [Russia Rebound Lifts This ETF]
One of the newer entrants to the emerging markets dividend fray, the WisdomTree Emerging Markets Dividend Growth Fund (NasdaqGM: DGRE), looks to capitalize on the trend of payout growth in developing economies.
Like its U.S.-focused cousin, the WisdomTree U.S. Dividend Growth Fund (NasdaqGM: DGRW), DGRE relies heavily on return on assets and return on equity in finding companies that can be solid sources of dividend growth going forward.
A combined 28% weight to Brazil and Russia, the ETF’s largest and third-largest country weights, has propelled the fund to a three-month gain of 12.5%, but other constituent countries are boosting DGRE as well. Indonesia is one example.
“Indonesian equities are a prime example of an emerging market that went from being among the worst performers of 2013 to one of the strongest in 2014 over this period. Dividend Growth represents a nearly 10% over-weight position compared to the MSCI EM—and this was a major component of the relative outperformance. Within Indonesia, Dividend Growth had its biggest exposure within the Financials sector, which has delivered greater than 40% returns to start off 2014,” said WisdomTree Associate Director of Research Christopher Gannatti in a note out this week.
DGRE’s top sector weights include 18% to staples, 17.4% to materials, and in the fourth spot, a 13.3% allocation to bank stocks. That financial services exposure should not be off-putting to investors. Not when the largest Chinese banks are boosting payouts and Russian equivalents are expected to do the same. [China’s Dividend Growth Story]
“Even though uncertainty may roil emerging market equities, concepts like “dividend growth” and “quality” tend to remain attractive to investors. The fact that the MSCI EM has over 95% of its weight in firms that have paid at least one dividend in the past twelve months is a testament to the fact that emerging markets provide a rich hunting ground for dividend payers,” adds Gannatti.
DGRE Country Weights
Table Courtesy: WisdomTree