How To Extract Yield With Ex-US Developed Markets Stocks

As has been widely documented, developed markets outside the U.S. are awash in negative-yielding bonds and the U.S. isn't much to crow about the yield front. Ten-year Treasuries throw off piddly yields and “piddly” may just be an accurate adjec

Benzinga · 11/05/2019 19:09

As has been widely documented, developed markets outside the U.S. are awash in negative-yielding bonds and the U.S. isn't much to crow about the yield front. Ten-year Treasuries throw off piddly yields and “piddly” may just be an accurate adjective for the 1.84% dividend yield on the S&P 500.

What Happened

Fortunately for dividend hungry investors seeking international exposure, plenty of developed markets outside the U.S. offer higher dividend yields. For example, the widely observed MSCI EAFE Index yields 3.09%.

However, there's another option for investors looking to kick their ex-US developed markets yield exposure up a notch: The Global X MSCI SuperDividend EAFE ETF (NASDAQ: EFAS) has a trailing 12-month dividend yield of 6.56%.

Why It's Important

To be fair, EFAS has been a laggard this year, but the fund has recently shown some signs of life, gaining 6.42% over the past month. EFAS targets the MSCI EAFE Top 50 Dividend Index, which is a collection of the 50 highest-yielding names from the aforementioned MSCI EAFE Index.

EFAS is an ideal for investors looking to extract some more yield from European equities without committing to a dedicated Europe ETF.

Eight of the fund's top 10 geographic exposures are European countries, but EFAS also allocates almost 20% of its weight to Australia, a country that hasn't seen a recession in over three decades.

“An overlooked source of yield for investors is in high dividend paying equities. In this space, yields remain well above other asset classes like sovereigns and corporates, while also exhibiting value characteristics, which could be a benefit if there is a surprise uptick in economic activity,” Global X said in a recent research note.

What's Next

Traditionally, at least in the U.S., investors are forced to pay up on valuation to access defensive, high-yield assets, but that's not the case with EFAS.

“European high dividend stocks are trading at a 15% discount to their 5 year average price-to-earnings (P/E), compared to an 11% discount on the broader MSCI Europe Index,” said Global X. “The higher dividend yields along with lower valuations suggest European high dividend stocks could be an attractive total return play.”

At the very least, EFAS represents a more compelling option than many European sovereign bonds.

“High dividend equities, which are attractively valued given the muted performance and are offering relatively high yields, could be a viable alternative for both current income and potential price appreciation,” according to Global X.

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