There are inklings of an emerging markets rebound. For example, the ALPS Emerging Sector Dogs ETF (NYSEArca: EDOG) is higher by more than 20% in the current quarter, but there’s more work to be done. Fortunately, EDOG sports a dividend yield of 5.20%, meaning investors are adequately compensated for their patience.
EDOG, which debuted over six years ago, tracks the performance of the S-Network Emerging Sector Dividend Dogs Index. The index is comprised of the highest paying stocks, or “Dividend Dogs,” from the S-Network Emerging Markets Index, which holds large-cap, emerging market stocks. The Dividend Dogs include the five stocks in each of the ten Global Industry Classification Standard sectors that make up the S-Network Emerging Markets.
Emerging markets have always given investors another look at the global growth landscape, particularly since they could be in different economic phases—for example, the U.S. could be reaching a peak while an emerging market country could be in a growth acceleration phase. Adding dividends to the mix can reduce some of the volatility associated with assets in developing economies.
When EDOG is rebalanced, the issuer caps country and sector weights at 10% and individual holdings at 2%. Those strategies help limit single stock, sector, and geographic risk.
Evaluating EDOG
Value option or bear trap—these are the paths presented when it comes to emerging markets (EM), which could face significant risks ahead, making the latter option plausible despite the enticing low-priced EM assets.
“During global financial disruptions, developing countries are more severely impacted since they have more vulnerabilities. For instance, as a result of the pandemic, the global economy has been experiencing a recession with emerging markets seeing negative growth rates, according to the International Monetary Fund, headquartered in Washington,” reports U.S. News and World Report.
Some emerging markets dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services, and telecommunications.
With its equal-weight methodology, EDOG is able to sport an above-average weight to tech compared to other emerging markets dividend ETFs and a combined 30% allocation to the defensive consumer staples, healthcare, and utilities sectors.
Other emerging markets dividend ETFs include the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV), iShares Emerging Markets Dividend ETF (DVYE) and the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM).
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
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.
