Emerging markets dividend exchange traded funds are rebounding alongside traditional emerging markets funds this year. For example, the SPDR S&P Emerging Markets Dividend ETF (NYSEArca: EDIV) is up more than 10% year-to-date.
Emerging markets dividend growth has outpaced developed world payout growth over the past decade and market observers expect that trend to continue, but some advisors and investors gloss over emerging markets dividend exchange traded funds. However, that growth came under pressure last year as commodities prices slumped.
When share prices tumbled for emerging markets energy and materials firms, some have slashed dividends due to weakening balance sheets. Additionally, some major emerging markets banks are under pressure, indicating that rising dividends from that group may be hard to come by. Those scenarios mean investors need to place a premium on locating reliable emerging markets dividend growth.
Over the past few months, foreign investment flows into emerging market stocks surged, despite any notable changes to the growth, dividends and corporate earnings in the developing economies.
As loose central bank policies pushed up valuations on investment-grade government bonds, the low bond yield environment has upturned the traditional role of emerging stocks.
“EDIV only weights China at about 11% of the fund – still noteworthy, but it’s not even a top-three country. Instead, the overweight to pay attention to is Taiwan, which makes up almost 30% of the fund. South Africa (16%) and Brazil (15%) are the two other double-digit weights here,” according to InvestorPlace.
EDIV also offers some notable exposure to technology stocks, an area of growth in developing economies.
“Also, while financials (20%) and telecommunications (20%) are the two largest sector holdings – unsurprising for a dividend-focused fund – information technology is a solid 17% of the fund. While tech is very much a high-growth area for dividends, it’s still not exactly teeming with high yields yet. Nonetheless, holdings like 4% yielder Realtek Semiconductor, from Taiwan, pull their weight,” reports InvestorPlace.
For more information on dividend stocks, visit our dividend ETFs category.