Getting Paid The Emerging Markets Way
Emerging markets equities and exchange-traded funds are looking better this year than they have for awhile. That much is confirmed by a more than 6 percent year-to-date gain for the widely followed MSCI Emerging Markets Index.
While traditional, diversified emerging markets ETFs are on the mend, there is even better news: So are their dividend counterparts. That includes the SPDR S&P Emerging Markets Dividend ETF (SPDR Index Shares Fund (NYSE: EDIV)), which S&P Capital IQ named as its focus ETF for April.
When emerging markets ETFs were faltering over the past several years, the comparable dividend ETFs were just as bad, if not worse. Funds like EDIV betrayed the notion that dividends are supposed to provide shelter from market storms. Over the past two years, EDIV is down more than 30 percent, but to be fair, the ETF eating away at those losses with a year-to-date gain of almost 13 percent. That easily tops the MSCI Emerging Markets Index.
A Closer Look AT EDIV
“Meanwhile, EDIV’s 12-month yield of 5.4 percent was more than double that of both EEM (2.7 percent) and SPY (2.2 percent), though in many cases S&P Global Market Intelligence thinks the constituents have a consistently strong record of dividends and earnings,” said S&P Capital IQ in a new research note. “For example, MTN Group, the South African telecom services provider, is a top-10 holding. The stock has a 10 percent yield. However, the company has an above average Quality Ranking of A- according to S&P Global Market Intelligence.”
EDIV allocates a combined 43.5 percent of its geographic weight to Taiwan and South Africa, two countries that are staples among emerging markets dividend ETFs. Brazil and China, the largest emerging markets dividend payer in dollar terms, combine for almost a quarter of EDIV's weight. EDIV sports a trailing 12-month yield of 4.4 percent and its 122 holdings give the ETF a price-to-earnings ratio of 10.6, indicating that although EDIV is a dividend fund, it is not exceptionally expensive relative to traditional emerging markets funds.
“Another such low-risk consideration top-10 holding is Industrial & Commercial Bank of China. While the stock has a 6.3 prcent dividend yield, the company has an A- Quality Ranking. Meanwhile, S&P Global Market Intelligence equity analyst Siti Rudziah Salikin thinks China’s largest commercial bank’s fundamentals are strong. Management is focusing on driving quality earnings expansion through a more measured and controllable pace of loan growth, greater diversity of income, and a high emphasis on asset quality management,” added S&P Capital IQ.
A potential risk for EDIV going forward would be investors' resuming their distaste for state-run emerging markets firms. The ETF devotes nearly two-thirds of its combined weight to financial services, telecom and utilities names, which in the developing world are often controlled by the government.
Image Credit: Public Domain
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.