Dividend growing companies have been a mainstay of many income-minded investors. With exchange traded funds, investors can also capture steady dividend payers in international markets.
For instance, the ProShares MSCI EAFE Dividend Growers ETF (NYSEArca: EFAD) follows the MSCI EAFE Dividend Masters Index, which is comprised of at least 40 stocks from developed overseas markets that have shown at least 10 consecutive years of dividend growth. The underlying index has a 2.82% dividend yield. [Like Dividend Growth? You’ll Love These ETFs]
Steady dividend growing companies have provided better total returns. According to ProShares and Ned Davis Research of MSCI EAFE stocks from June 1996 through June 2014, dividend growers outperformed other dividend payers, dividend non-payers and dividend cutters.
“Dividend strategies have gained a foothold with equity investors seeking outperformance potential and attractive yield,” according to Proshares. “But it’s important to remember that not all dividend strategies are created equal. While companies that paid dividends outperformed those that didn’t, in recent years, companies that grew their dividends year over year outperformed companies that simply paid dividends.”
Under its current criteria for inclusion, EFAD includes an overweight tilt toward the United Kingdom, compared to the benchmark MSCI EAFE Index. The UK has exhibited a long and stable dividend-paying culture.
“Of the 109 UK-based stocks in MSCI EAFE, 25 stocks, or 23% of the total, have grown their dividends for at least 10 consecutive years,” according to ProShares. “Moreover, since 2009, UK companies have grown their dividends at an annual rate of over four times the rate of MSCI EAFE as a whole.”
EFAD’s country weights include the U.K. 46.7%, Switzerland 10.4%, Japan 7.8%, Denmark 6.1%, Australia 5.7%, Spain 5.5%, Germany 4.0%, Israel 2.0%, Ireland 2.0% and Hong Kong 1.9%. In contrast, the MSCI EAFE Index’s top holding is Japan, followed by the U.K., France and Switzerland.
The dividend ETF also includes heavy tilts toward defensive sectors, including 21.4% healthcare and 18.5% consumer staples, along with industrials 16.3%, consumer discretionary 13.3%, utilities 9.4%, materials 7.8%, financials 5.6%, energy 5.1% and tech 1.8%. The MSCI EAFE Index leans towards financials, followed by consumer discretionary, industrials, healthcare and consumer staples.
ProShares MSCI EAFE Dividend Growers ETF
For more information on dividend stocks, visit our dividend ETFs category.
Max Chen contributed to this article.