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Emerging Markets as a Dividend Play? You Bet, Says Lydon


One of the traits that made Ron Popeil one of the greatest salesmen of all time was his ability to make a product seem better and better. Just when you thought the case for owning a particular gadget couldn't possibly get any better, Popeil would deliver his famous line, "but wait -- there's more," and further compel you to reach for your wallet.

While speaking with Tom Lydon, editor of ETFtrends.com, I had a Ron Popeil moment. Lydon's latest investment strategy seemed to be bordering on too-good-to-be-true. Not only is he making the case for the outsized growth opportunity that is available from Emerging Markets in an otherwise lackluster world, but in the attached video he's also working in a way that let's you get paid while you wait.

Emerging market countries and companies, Lydon points out, are often in much better shape than than their counterparts in the U.S. and Europe. "Oh and by the way, they're making a lot of money and kicking off some pretty good dividends too," he adds.

Ten years ago, iShares MSCI Emerging Markets (EEM) used to be the place "for your speculative money," but Lydon says that has changed. In fact he says 55% of global market cap comes from outside the U.S., not to mention mention most of the world's GDP growth.

"If you can get on average four, five, and in some cases, 6% dividend yield while you're waiting for global markets to get traction; not a bad yield."

One such fund that seeks this sort of hybrid return is the Wisdom Tree Emerging Markets Equity Income (DEM), which Lydon says utilizes an automated stock picking process that adds the top 1/3 of dividend payers annually to their portfolio.

He also points to the SPDR S&P Emerging Markets Dividend fund (EDIV), which carries a 6.9% yield and all the upside (and of course downside too) that the developing markets may bring.

While some have questioned the impact that pending tax changes might have on dividend paying stocks domestically, Lydon falls into the ''they'll be fine'' camp, based upon his belief that the demand for income won't go away and the reality that as much as half of all dividend paying stocks are currently held in tax-sheltered accounts, so an increase would not be felt anyways.

"Six months from now, we're going to be passed all of this and what are we going to be looking for?" he asks, "some of the same the things we're looking for today."