Among the ETFs offering exposure to emerging markets dividend payers, the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM) is one of the more venerable names.
Dividends provide an objective measure of a company’s health and profitability – one that cannot be affected by accounting methods or government decisions. And while the emerging markets may not be the first place investors look when seeking income, the income potential with this asset class is significant as many traditional emerging markets benchmarks are chock full of dividend payers.
“Companies within certain foreign markets are known to distribute dividends very sporadically, and this fund is no different,” reports ETF Daily News. “In the recent past, quarterly distributions have been as high as over $1 per share and as little as $0.27 per share. Investors won’t want to turn to this fund for regular income, but its trailing 12-month dividend yield has been consistently north of 3%. That’s a nice return for investors as they ride out some of the riskiness that these markets often experience.”
As many income-minded investors turn to alternative avenues in search for yields, international markets have become a popular destination, but one should be mindful of potential currency risks associated with overseas exposure.
The $2 billion DEM, which is 10 and a half years old, selects stocks based on dividend yield, but weights its holdings on the basis of cash dividends paid. Some analysts believe emerging markets stocks can continue delivering upside for investors. Historical data points indicate the current bull market in emerging markets stocks could last awhile.
“Research from WisdomTree indicates that when the valuation gap between emerging markets and the S&P 500 is as large as it currently is, emerging markets tend to strongly outperform over the following five-year period. With earnings growth finally providing a lift to the group once again, large-cap dividend payers from the emerging markets nations are looking like a particularly attractive play heading into 2018,” according to ETF Daily News.
DEM features exposure to 20 countries with Taiwan and China combining for about 43% of the fund’s weight. The ETF is also known for frequently being overweight Russian stocks, a strategy that makes sense for a dividend fund because Russia is one of the largest dividend destinations among emerging markets. Russian stocks account for 13.7% of DEM’s roster.
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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.