Emerging markets dividends offer investors added compensation
for the elevated risk and volatility that come with investing in
the developing world.
However, emerging markets dividends are a different beast than
their developed world counterparts and the concept of developing
world payouts is still relatively new.
Frontier markets dividends are another ballgame, too, but
these payouts can be found and one country has the potential to
be a future driver of dividend growth. Emphasis on "potential."
Some frontier markets do offer dividend opportunities, Qatar and
the United Arab Emirates come to mind, but that pair
will leave frontier territory next year
to become emerging markets.
The iShares MSCI Frontier 100 ETF (NYSE:
) has a 30-day yield of just 1.82 percent,
according to iShares data
. When Qatar and UAE, a combined 32 percent of the ETF's weight,
are stripped out of the top-10 country allocations, FM is not
left with a lot of countries that can be considered "dividend
One frontier market beyond Qatar and UAE and that offers some
dividend potential is Vietnam. That idea may strike some as odd
given that the Market Vectors Vietnam ETF (NYSE:
) has a
SEC yield of just 1.55 percent
Here is the skinny on Vietnam's dividend potential: The
country's state-run enterprises are flush with cash, but those
companies are not sharing the wealth with the government in the
form of dividends. In other words, Vietnam has yet to follow
China, Russia and others in forcing or attempting to force its
state-controlled firms to lob off dividnds.
State-owned enterprises, SOEs, are holding billions of dollars
in their coffers, money that could have been submitted to the
state budget for spending on infrastructure projects that
urgently need funding,
according to Thanh Nien News
The Thanh Nien News article points out that a unit of
PetroVietnam had profits of $477 million last year, a number that
does not sound like much, but remember that the total market
value of all Vietnamese stocks is below that of many U.S.
companies. Vietnam Rubber had profits of $401.5, and like the
PetroVietnam unit, plowed some of that cash back into the
business and kept the rest on hand.
Vietnam actually approve a law to receive dividends from
state-run firms a decade ago, but the plan has never been
implemented. Now might be the time as the country has formed a
TARP-esque program aimed
at shoring up banks' balance sheets
. Not all Vietnamese banks need the assistance. Vietinbank is
capitalized to the tune of $1.23 billion, according to Thanh Nien
No Guarantees Betting on VNM suddenly becoming a dividend diva
is a tough call to make. However, it is clear Hanoi has been
quite kind to its state-controlled firms. Proceeds from share
sales in these companies go back into the business and the
companies' budgets are in part funded by taxes paid by private
firms. As of last year, Vietnam's government had almost $35
billion invested in state-owned companies
according to the Steering Committee for Business
Renovation and Development
Why the government has yet to press for increased dividends
might appear confusing to Western investors. On the other hand,
enthusiasm for VNM's potential as a true frontier dividend ETF is
tempered when considering the case of Russia. Russia had big
plans for increased dividends from state-controlled companies
heading into 2013
but some of those firms
, including Sberbank and VTB Bank OJSC along with major energy
producers have rebuffed Prime Minister Vladimir Putin's calls for
dividends to reach 25 percent of net income.
In the case of Vietnam, the country should be forcing its
companies to pay more and better dividends. That plan fits with
the country's efforts to open its markets and attract more
foreign capital. Some foreign investors may not realize this, but
dividends paid in Vietnam are not subject to tax,
according to Deloitte
. Higher dividends and favorable tax treatment of those payouts
could spur more foreign direct investment into Vietnam and more
assets into VNM.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga