Market Overview

A Case For European Dividends With This ETF

A Case For European Dividends With This ETF

As is historically the case with U.S. stocks, dividends figure prominently in long-term total returns for European equities. Among developed markets, the U.K. and Switzerland are two of the most reliable ex-U.S. dividend growth markets and as the eurozone economies continue notching incremental improvement, the possibility of dividend growth there is enhanced.

Digging Into Dividends

“Dividends — the bit of a company's earnings they want to share with stockholders — in Europe ex-U.K. were 1.1 percent higher in the second quarter of 2016 than in the same period in 2015, at $140.2 billion on a headline basis, Henderson Global Investors said in a report,” according to CNBC.

Investors looking to really hone in on European dividend growth opportunities can tap the WisdomTree Europe Quality Dividend Growth Fund (NYSE: EUDG). Up 10.3 percent year-to-date, EUDG was one of a small number of U.S.-listed exchange-traded funds to hit a 52-week high last Thursday.

Looking At EUDG

EUDG follows the WisdomTree Europe Quality Dividend Growth Index. As is the case with some of WisdomTree's other dividend benchmarks, the WisdomTree Europe Quality Dividend Growth Index emphasizes return on equity and return on assets via the growth and quality factors.

“The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three-year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid,” according to the issuer.

On a year-to-date basis, EUDG is proving dividends make a difference as the ETF is easily topping rivals such as the Vanguard FTSE Europe ETF (NYSE: VGK) and the iShares MSCI Eurozone ETF (NYSE: EZU), which are up an average of 7 percent this year.

The U.K. accounts for almost 24 percent of EUDG's weight and is the ETF's largest geographic allocation, which makes sense given the country's prominence among developed markets dividend payers. Germany and Switzerland combine for about a third of the ETF's weight.

EUDG's sector lineup is not vastly different from what investors will find with many U.S.-focused dividend growth strategies as the industrial, consumer staples and healthcare sectors combine for almost 57 percent of the ETF's 201-stock roster.

Since inception just over three years ago, the WisdomTree Europe Quality Dividend Growth Index has topped the MSCI Europe Index while being slightly less volatile, underscoring the benefits of European dividend growers.

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