European companies have slowly increased dividend payouts to pre-crisis levels, bolstering the appeal for exchange traded funds that track the region.
For instance, investors interested in dividend payouts that are more attractive than U.S. equities can take a look at European stock-related ETFs like the broad Vanguard FTSE Europe ETF (NYSEArca: VGK), which has a 4.33% 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 3.53% and 2.76% 12-month yield, respectively. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY) has a 1.82% 12-month yield.
The currency hedged WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) comes with a slightly lower 1.84% 12-month yield. Additionally, the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU) has a 4.01% 12-month yield, but the ETF includes exposure to the United Kingdom and Switzerland.
According to Markit research, European company stock payouts jumped 10.3% in the fiscal 2014 year-over-year, the fastest dividend growth since 2010, reports Dhara Renasinghe for CNBC.
“The increase in regular dividend payouts since 2010 shows that companies are gradually shifting back towards their pre-crisis dividend policies, and have a growing confidence to return cash as they report higher earnings,” Thomas Matheson, an analyst at Markit, said in the article.
Leading the dividend growth, the bank sector’s dividends jumped 32%. The iShares MSCI Europe Financials ETF (NYSEArca: EUFN), which tracks the European financial sector, shows a 3.2% 12-month yield. However, EUFN does not hedge against currency risks.
With the improving economic outlook, more observers expect European companies to produce healthier returns and pass on the growth to shareholders through higher dividends.
“We’re pretty optimistic on the outlook for corporate earnings and expect that to seep through into dividend payments,” Robert Parkes, director of equity strategy at HSBC, said in the article. “It’s primarily to do with the improving economic backdrop we’re seeing in Europe. We also don’t believe that payout ratios are particularly high at this point either, so there is a potential for dividend payments to rise further.”
For more information on Europe, visit our Europe category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of SPY and HEDJ.