European stocks and the related exchange traded funds have vexed investors for several years, but investors can wade back into the asset class with dividend strategies, such as the ProShares MSCI Europe Dividend Growers ETF (CBOE: EUDV).
EUDV can help investors access European equities with steady track records of rising payouts. EUDV tracks the MSCI Europe Dividend Masters Index, which requires member firms to have boosted payouts for at least 10 consecutive years.
On that note, EUDV can be seen as a European answer to some of the domestic dividend aristocrats strategies that are popular with many dividend investors.
Last year, “European Dividend Aristocrats, like their U.S. counterparts generated modest relative outperformance in a down year for global equities,” according to Seeking Alpha. “For both the U.S. and European strategy, dividend growth has driven long-run outperformance.”
Dividends are often viewed as a quality trait, but investors looking for credible combinations of dividends and the quality should assess factors beyond pure yield. Those factors include return on equity (ROE) and a company’s ability to sustain and grow payouts.
What’s Next for EUDV ETF
EUDV is potentially useful for conservative investors looking for international diversification for multiple reasons, including its geographic exposures. The fund allocates over half its weight to the U.K. and Switzerland and almost 9% to Denmark, reducing the importance of the European Central Bank’s monetary policy on the fund’s performance.
“UK payouts rose by 8.8 per cent at an underlying level, ahead of the global average of 8.5 per cent,” reports The Financial Times.
The ECB recently revealed plans for fresh measures to stimulate the Eurozone economy less than three months after ending a €2.6 trillion, or $2.9 trillion, bond-buying program, the Wall Street Journal reports.
The ECB will hold rates at their current levels at least through the end of this year and announced plans for a new round of cheap long-term loans for banks. ECB President Mario Draghi attributed the stimulus measures to prevalent risks in the economy.
Valuations still look attractive relative to domestic stocks. On a forward earnings basis, European stocks have gotten cheaper continually since 2015, and price-to-book value for the region shows European names trading at a multi-year discount to the U.S.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.