Market Overview

A Country ETF Idea For Growing Dividends

A Country ETF Idea For Growing Dividends

Experienced dividend investors know not to confine their search for consistent, growing payouts to U.S. stocks. After all, about half of the world's dividend-paying stocks are tied to companies based outside the U.S.

Fortunately, many of the premier sources of ex-US dividend growth and yield can be found in developed markets, meaning U.S. investors don't need to incur significant geographic risk to bring some diversity to their dividend portfolios. In fact, an already hot single-country developed market exchange-traded fund can help U.S. investors tap a solid European dividend market.

The iShares MSCI France ETF (NYSE: EWQ) is up more than 23 percent year-to-date, ranking it among this year's best-performing single-country developed markets ETFs. Much of the ebullience surrounding EWQ and French stocks is tied to the country's presidential election, which was completed in May, but there is a legitimate dividend story here, too.

Saying Oui To Dividends

A spate of mergers and acquisitions activity in France, the Eurozone's second-largest economy, could potentially way on payout policies. However, it looks like companies involved in deal-making remain committed to dividends.

“While the flurry of French takeover activity has offered plenty of the aforementioned opportunities, the IHS Markit dividend forecasting team does not expect any of the participants to backtrack on prior dividend commitments,” Markit said in a recent note. “In fact, all but two of the French companies involved in major strategic mergers this year are forecasted to raise their dividend payments over FY17.”

EWQ allocates about 37.5 percent of its weight to industrial and consumer discretionary names, sectors that in Europe are known for being home to some steady dividend growers.

A Decent Yield

“Danone’s acquisition of US competitor WhiteWave back in April has been the most potentially disruptive acquisition to year-to-date,” said Markit. “The $12.5 billion deal, which was financed entirely by debt, impacted 2 percent of the total SBF 120 dividends paid. Despite the large sums of cash involved in the deal, Danone kept its commitment of a 'constant or growing' dividend.”

Consumer staples giant Danone SA is EWQ's ninth-largest holding. The largest France ETF trading in the U.S. has a trailing 12-month dividend yield of about 2 percent, which is slightly above the S&P 500 and better than what investors will find on negative-yielding Eurozone sovereign debt.

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