Emerging markets stocks and ETFs have long been credible destinations for dividend investors, but this asset class requires selectivity when hunting for dependable dividends. For instance, the widely followed MSCI Emerging Markets Index yields just 2.18%.
That is not much more than the yield on the S&P 500 and the MSCI Emerging Markets Index has seen its share of dividend offenders over the years. The ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV) is a better avenue for investors that want dividend compensation for investing in emerging markets equities.
EMDV follows the MSCI Emerging Markets Dividend Masters Index, which targets MSCI Emerging Market components that have increased dividend payments each year for at least seven consecutive years.
“Emerging Asia is offering the highest dividend yield differential to the U.S. in at least five years. Now that a three-month money-market account returns 2.6 percent, where should dollar investors put their cash?,” reports Bloomberg.
Why It’s Important
Half of EMDV’s top 10 country weights are Asian nations, including an almost 13% weight to China. China, the world’s second-largest economy, has long been a primary driver of emerging markets dividend growth.
“Companies in emerging Asia also have better dividend health, based on a Bloomberg proprietary forecasting model that looks at variables such as profitability, payout ratios and net leverage – 70 percent better than their U.S. counterparts, in fact,” according to Bloomberg. “Over the next year, the Asian group should generate a 3.44 percent dividend yield, against 2.4 percent for S&P 500 companies, according to that model.”
Related: Fed Remains Key For Emerging Markets ETFs
While EMDV yields just 1.53%, that yield could be supportive of dividend growth. Additionally, EMDV is proof positive that dividend growth strategies can mitigate downside when markets decline. Over the past year, EMDV is lower by 6.48%, less than half the loss incurred by the MSCI Emerging Markets Index over that period.
Dividend growth rather than high yield can be a potent, less risky long-term income strategy. Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts.
EMDV is up 7.79% this year and resides just 7.88% below its 52-week high.
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