Dividend Growth Working for an Emerging Markets ETF
The dividend growth theme that is so prevalent as an evaluation tool for U.S. equities can be carried over to emerging markets stocks as well.
And this year, the emerging markets dividend growth theme, as highlighted by the WisdomTree Emerging Markets Dividend Growth Fund (DGRE) , is, well, paying dividends. The Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) are up 14.8% and 12.8%, respectively, this year. DGRE is flirting with a gain of 15%. [Dynamic Dividends in an EM ETF]
DGRE’s underlying index, the WisdomTree Emerging Markets Dividend Growth Index (WTEMDG), “was designed to focus on dividend payers within emerging markets that exhibit relatively strong earnings growth potential as well as relatively higher quality metrics,” said WisdomTree Associate Director of Research Christopher Gannatti in a note out Tuesday.
At the sector level, DGRE is home to some familiar destinations for U.S. income investors with a combined weight of nearly 35% to consumer staples and telecom names. A combined 12.4% weight to consumer discretionary and industrial stocks is helpful as well because those sectors have been important contributors to emerging markets dividend growth dating back to last year.
Last year, emerging markets companies accounted for $1 of every $7 paid in dividends and payouts in developing economies have more than doubled over the past several years. Emerging markets dividends are expected to rise 6% this year to $238.8 billion.
Country are holdings are always a pivotal piece of the evaluation puzzle when it comes to emerging markets ETFs, dividend or otherwise, and DGRE has benefited from a “right overweight, right time” scenario.
“A greater than 9.5% average over-weight to Indonesia and a greater than 8% average over-weight to Thailand were primary drivers of outperformance. Both of these markets had a tumultuous 2013 but have been on the comeback trail in 2014,” notes Gannatti.
The iShares MSCI Thailand Capped ETF (THD) and the Market Vectors Indonesia Index ETF (IDX) are up an average of 32% this year. That is good news for DGRE, which allocates 12.3% and 10.4%, respectively, to Indonesian and Thai stocks. Those countries combine for less than 5% of the MSCI Emerging Markets Index. [EM ETF With a Dividend Kicker]
An 11.4% weight to Russia, one of the largest dividend markets in the developing world, could prove useful to the ETF as stocks there rally following months of controversy. DGRE’s Russia weight is more than double that of the benchmark emerging markets index.
WisdomTree Emerging Markets Dividend Growth Fund
