European stocks may have been battered by the long running Greek debt crisis, but when it comes to earning juicy dividends they don't turn down investors. If you look at both the MSCI Europe Index (which tracks large and mid cap companies across 15 developed markets in Europe) and the STOXX Europe 600 Index (a benchmark of small, midsize and large companies in Europe), dividend yield is handsome at 3.4% (as of August 31, 2015). This compares with a dividend yield of 2.1% paid by Standard & Poor's 500 index companies (as of September 17, 2015) (read: Grexit or Not, Buy These 3 European ETFs )
There are mainly two good reasons for the European companies to pay fat dividends. Firstly, it is the weaker euro which helps ballooning up exports and therefore the companies' top line. Secondly, the European Central Bank's €1.1 trillion ($1.2 trillion) or €60 billion-a-month quantitative easing program has instilled positive sentiment into the economy (read: Watch These Europe ETFs If the ECB Prints Money ).
At this juncture, investors should definitely take a look at the newly launched MSCI Europe Dividend Growers ETF by ProShares, which trades under the symbol EUDV .
EUDV in Details
EUDV tracks the performance of the MSCI Europe Dividend Masters Index focusing on 51 MSCI Europe companies that have increased dividend payments each year for at least 10 consecutive years. The index contains a minimum of 25 stocks which are equally weighted. No single sector can compose more than 30% of the index and no single country may compose more than 50% of the index. The index has a dividend yield of 3.07%.
Seadrill Ltd ( SDRL ), BHP Billiton Plc ( BBL ) and Amec Foster Wheeler Plc are the top three holdings in the fund with a share of 2.16%, 2.13% and 2.07%, respectively. The top 10 companies constitute 20.4% of the fund.
As far as sector allocation is concerned, Industrials (19.54%), Health Care (17.6%) and Consumer Staples (17.43%) make up the top three positions. Considering country-wise allocation, the fund is heavily biased toward U.K. with a 49.49% share while France and Switzerland occupy the second and third positions with 11.6% and 9.61% shares, respectively.
The fund charges 55 bps in fees
How Does it Fit in a Portfolio?
The fund provides a good opportunity for income-hungry investors willing to put capital in a market that is experiencing heightened manufacturing and trading activities. In August, the Markit Eurozone Manufacturing Purchasing Managers' Index ("PMI"), which measures the performance of the manufacturing sector, came in at 52.3, which is a tad lower than 52.4 in July but much higher than 50.7 last year. Meanwhile, Services PMI rose to 54.4 in the month from 54.0 in July. A PMI reading below 50.0 indicates sluggish activity, but a reading above that level indicates increasing activity.
On the other hand, Euro zone's trade surplus in July surged 48.1% to €31.4 billion ($35.5 billion) from €21.2 billion ($24 billion) a year ago, setting a new record. Exports went up 7% on a year-on-year basis while imports rose only 1% in the month on falling energy costs. In the first seven months of the year, exports also escalated 7% year over year while imports grew 2%, leading to a surplus of €146.5 billion ($165.8 billion), compared with surplus of only €97.1 billion ($109.9 billion) in the period January-July 2014.
Enhanced manufacturing and trading activities bode well for the companies paying hefty dividend to its stakeholders making this fund a lucrative option (read: Follow Goldman with These European ETFs ).
Although ProShares specifically targets companies that have a good track record of year-over-year dividend growth, there are a couple of funds worth mentioning here that also track the high dividend paying equity market in Europe. These are WisdomTree Europe SmallCap Dividend ETF ( DFE ) and First Trust STOXX European Sel Div ETF ( FDD ) (see all European Equity ETFs here).
DFE tracks the WisdomTree Europe SmallCap Dividend Index targeting the small-cap dividend paying companies in Europe and manages a robust asset base of $1 billion. On the other hand, FDD with an AUM of roughly $178 million replicates STOXX Europe Select Dividend 30 Index targeting high-dividend yielding companies across 18 European countries. Notably, the STOXX Europe Select Dividend 30 Index consists of companies from the STOXX Europe 600 Index having a positive five-year dividend-per-share growth.
DFE and FDD are almost equally costly with expense ratios of 0.58% and 0.60%, respectively. However, on the yield front, FDD does a better job at 4.55% compared with DFE (2.68%).
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