Rookie ETF Offers Exposure to Rising EM Dividends
The concept of dividend growth is not new to U.S. investors as some of the most venerable names in corporate America are also prodigious dividend raisers. For example, Dow components Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG) have some of the longest dividend increase streaks in the U.S.
Dividend growth is also an important concept for investors that opt for ETFs over single stocks. When it comes to funds focused on U.S. stocks, investors have an array of options ranging from ETFs that track index built on dividend increase streaks to those funds that focus on valuation factors in an effort to best capture future dividend growth.
Steadily growing payout is still a relatively new idea when it comes to emerging markets stocks and ETFs. However, astute investors are demanding added compensation for the risks that go along with investing in the emerging world.
Some companies and ETFs are meeting those demands. A new kid on the block of emerging world dividend growth is the EGShares Emerging Markets Dividend Growth ETF (NYSE: EMDG). EMDG tracks the FTSE Emerging All Cap ex Taiwan Diversified Capped Dividend Growth 50 Index, which takes into account dividend quality and growth, and dividend payout ratios, according to EGShares.
The ex-Taiwan concept cuts both ways. Taiwan has a reputation for being one of the least volatile, highest dividend emerging markets. However, while the country is still a force among emerging markets dividend payers, it's dividend stream fell for the year ending May 31, according to WisdomTree data.
EMDG, which features an index yield of almost 3.9 percent, is heavily exposed to some of the most prominent dividend countries in the developing world. In terms of dividends paid in U.S. dollars, China, Brazil and South Africa are three of the six largest emerging markets dividend countries with China being the largest.
In this order, China, South Africa and Brazil, those countries are EMDG's top-three country weights combing for 52.3 percent of the ETF's weight. As an added bonus, Malaysia, the number five emerging markets dividend-paying nation, is 8.2 percent of EMDG's weight. The bonus comes in the form of Malaysia being one of the lowest beta emerging markets.
Overall, EMDG's country allocations offer investors ample exposure to the emerging markets dividend growth story. However, if we had to quibble, it would be nice to Russia account for more than 7.3 percent of the new ETF's weight. Although some of Russia's state-run firms have proven reluctant in embracing President Vladimir Putin's demands for payouts equivalent to 25 percent of net income, the country is the fastest-growing dividend destination of the four BRIC nations.
EMDG debuted on July 1 and has been flat since then, but with a plethora of calls out there that emerging markets are either inexpensive, overdue for a rebound or both, the fund is worth a place on the consideration lists of risk-tolerant income investors.
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