It’s often said that European equities are inexpensive relative to U.S. stocks, and that has been the case for some time.
Of course, valuation alone isn’t reason to buy or sell a security. That said, European stocks are getting too cheap to ignore, and investors can tap into that theme with an array of exchange traded funds, including the WisdomTree Europe Quality Dividend Growth Fund (NYSEArca: EUDG).
“The valuation gap between U.S. and European stocks has reached unprecedented levels this year. Most extreme is the U.S.-U.K. comparison: Based on forward price-earnings multiples, the S&P 500 is now roughly 75% more expensive than the British blue-chip FTSE 100 index. During the year before the pandemic, the average was about 35%,” reports Stephen Wilmot for the Wall Street Journal.
EUDG could be the ideal way to tap into the European valuation scenario. Experienced investors know that not all value stocks sport quality traits. That’s true regardless of a company’s home domicile. However, there are occasions when quality stocks offer value, and that’s true today with some EUDG components.
Still, investors need to look past a lengthy stretch of the S&P 500 and other domestic benchmarks beating their European rivals.
“European stocks have underperformed U.S. ones so consistently since the 2008 financial crisis that a broad investment in the region can seem like a bet against history. In some dowdy sectors, though, a bit more corporate activity to shine a spotlight on assets that do tick investors’ boxes could help to turn the tide,” according to the Journal.
For its part, EUDG is up 12.17% year-to-date. That’s an advantage of about 150 basis points over the MSCI Eurozone Index. The WisdomTree ETF also yields 22 basis points more than that index.
When it comes to dividend growth, EUDG offers plenty of inroads. For example, the fund allocates 22.6% of its weight to U.K. stocks. While dividends there are rebounding in noteworthy fashion, nearly 20 FTSE 100 companies either yield less than 1% or don’t pay a dividend at all.
Germany, the Eurozone’s largest economy and the fourth-largest country weight in EUDG at 8.6%, is another bright spot of payout growth.
“According to current estimates, 33 of the 40 DAX-listed companies are set to pay out more dividends in 2022 than in 2021. These companies’ profits have more than doubled compared to the previous year,” according to Block-Builders.net.
EUDG turns eight years old in May and allocates 39% of its weight to industrial and consumer staples stocks.
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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.