The U.S. doesn’t have a monopoly on dividend growth, though it often feels like it. With payout growth resuming on a global scale, some ex-US regions have plenty to offer income investors seeking some international diversification in their portfolios.
Developed and emerging Asia are offering brighter dividend outlooks this year, highlighting benefits with the actively managed SmartETFs Asia Pacific Dividend Builder ETF (ADIV). Asia’s impressive payout trajectory is supported by multiple factors, including 2021 rebounds in industries previously known for tidy yields and strong cash positions in some sectors. Strong cash positions and stout balance sheets are critical to success in dividend investing.
“We’re looking for companies with strong balance sheets that over a long period of time have been committed to delivering income growth and have a proven track record. And that’s exactly the type of business we want to invest in. And we find those in Asia, emerging markets,” said Bruce Stout, manager of the Murray International Trust, in an interview with Morningstar.
Something of note for investors considering ADIV is that the notion of shareholder rewards in Asia, in both developed and emerging markets, is still a new phenomenon relative to the U.S. and Europe. That means dividends in Asia are growing from a lower base and can potentially have bigger growth rates in percentage for long-term investors.
“But in the last 10, 15 years, we’ve seen lots of companies in Asia embrace a total return to shareholders and increase dividends,” Stout tells Morningstar.
To the point of dividends and payout growth still being in the early innings in Asia, ADIV is a focused exchange traded fund with just 35 holdings. Investors holding domestic dividend funds are used to larger lineups, but in the case of ADIV, that concentrated roster is advantageous because it presents to investors high-quality, high-conviction names, some of which are undervalued and essentially all of which have the resources to support dividends.
“The Fund typically invests in 35 companies, with each company having an equal weighting. This helps balance the benefits of diversification while also allowing each company to add meaningfully to performance. We don’t have a long tail of small positions, and by definition, we can never just ‘hug’ the benchmark index,” according to SmartETFs.
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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.