Dividend funds have gained importance in a low-yielding world
With yields low across the developed market (EFA) (VEA), investors have been exploring investment products offered by the emerging markets (EEM) (VWO). And, given the inherent risk of investing in emerging markets, dividend funds gain importance in that they compliment the volatile price return accruing from these markets.
Being tangible and permanent benefits, dividends are always preferred by investors with a ‘one in the hand better than two in the bush’ approach. For emerging market investors, dividend funds provide the opportunity to earn a steady return, while also making good of the higher price gains which often come with a higher risk profile.
Top 5 emerging market dividend funds
We looked at the universe of emerging market dividend funds, and shortlisted the top funds for you; that is, funds with a dividend yield greater than 4%.
The iShares MSCI Emerging Markets Index Fund (EEM) currently has a dividend yield of 1.98%, while the Guggenheim Frontier Markets ETF (FRN) boasts of a 3.62% dividend yield. By contrast, developed markets lag behind in terms of dividend yield. The US S&P 500 benchmark tracking SPDR S&P 500 ETF (SPY) currently offers a 1.73% dividend yield, while the developed markets-tracking iShares MSCI EAFE Index Fund (EFA) has a 1.87% dividend yield currently.
So, the 6.95% dividend yield offered by the iShares Emerging Markets Dividend ETF (DVYE) or the 5.31% offered by the WisdomTree Emerging Markets High Dividend ETF (DEM) look shiny indeed. The ALPS Emerging Sector Dividend Dogs ETF (EDOG), the SPDR S&P Emerging Markets Dividend ETF (EDIV), and the WisdomTree Emerging Markets SmallCap Dividend ETF (DGS) are the other 3 big dividend-paying emerging market funds. The table above presents a head-to-head comparison of these top 5 funds on various metrics.
Let’s take a quick look at each of these funds and their portfolio highlights, individually, as we move ahead in this series.