S&P Highlights Country ETFs for Income Investors
Amid paltry interest rates on U.S. Treasuries and a meager two percent dividend yield on the SPDR S&P 500 (NYSE: SPY), international stocks and ETFs offer dividend investors avenues for higher yields. The growth of emerging markets dividend ETFs has provided one such option.
In addition, some country-specific ETFs currently offer income investors robust dividend yields, but not all are created equal and it is vital to remember dividends do not tell the entire story behind a country-specific fund.
"Take Spain, at 6.5%, its estimated 2013 dividend yield is by far the highest among major world markets. But so is its whopping dividend payout ratio of 150% which undermines its ability to maintain high yields, much less offer valuable dividend growth potential," S&P Capital IQ said in a research note. "But the region isn't without solid income opportunities, in our view. We see the U.K., Germany and Switzerland representing Europe's "income sweet-spot" as all three sport 2013 estimated yields of at least 4% while maintaining what we consider reasonable dividend payout ratios of 40%, 52% and 55%, respectively."
In the note, S&P Capital IQ placed Market-weight ratings on the iShares MSCI Germany Index Fund (NYSE: EWG), the iShares MSCI Switzerland Index Fund (NYSE: EWL) and the iShares MSCI United Kingdom Index Fund (NYSE: EWU). Those ETFs feature 30-day SEC yields of three percent, 1.76 percent and three percent, respectively.
S&P notes that the lack of capital appreciation offered by the broader emerging markets universe since 2009, "highlights the need to focus more on income in the EM space."
"The consensus sees EM dividends rising 10% in 2013, equating to a 3.3% yield at current prices," S&P said in the note. "At the country level, Turkey sports a nice balance between yield and dividend growth potential, in our view, with a 3.2% estimated 2013 dividend and the lowest payout ratio in the asset class, at 12%. In addition, we believe Brazil sports a healthy 4.1% estimated 2013 yield while maintaining a reasonable payout ratio of 48%. Lastly, South Africa has a 2013 estimated dividend yield of 4.2% combined with a payout ratio of 50%."
S&P also rates the iShares MSCI South Africa Index Fund (NYSE: EZA) and the iShares MSCI iShares MSCI Turkey Investable Market Inex Fund (NYSE: TUR) Marketweight. Those funds have 30-day SEC yields of 2.2 percent and 1.94 percent, respectively. The Vanguard MSCI Emerging Markets ETF (NYSE: VWO), the largest emerging markets ETF by assets, currently yields 2.25. VWO is also rated Marketweight by S&P.
S&P also has no rating on the iShares MSCI Brazil Index Fund (NYSE: EWZ), the largest ETF tracking Latin America's largest economy. With almost $7.6 billion in AUM, EWZ sports a 30-day SEC yield of nearly 3.3 percent. The $1.94 billion iShares MSCI Hong Kong Index Fund (NYSE: EWH), which has a 30-day SEC yield of almost 2.6 percent, landed a Marketweight rating from S&P as well.
For more on international dividend ETFs, click here.
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