In search of value, investors are funneling billions of dollars into exchange-traded funds (ETFs) dedicated to European stocks this year. That faith is being rewarded. The Euro STOXX 50 Index, one of the most widely followed gauges of European equities, is up 17.4% year-to-date compared to a 9.6% gain for the S&P 500 index.
Income investors can get in on the Europe ETF party with an array of dividend ETFs. In fact, some of the Europe-focused ETFs are outperforming counterparts that are not dedicated dividend ETFs.
As is often noted, there are some credible dividend markets outside the U.S., many of which are home to stocks that feature juicier yields than their U.S. peers.
In fact, Europe is home to some of the best dividend growth markets outside the U.S., including the U.K. and Switzerland. Additionally, as Eurozone economies improve, markets such as Germany and the Netherlands could reward dividend investors.
Consider the following dividend ETFs if you’re looking to get paid to invest in Europe.
Dividend ETFs to Buy: WisdomTree Europe SmallCap Dividend Fund (DFE)
Expense Ratio: 0.58% per year, or $58 annually on a $10,000 investment
For the investor that wants small-cap exposure without the frustration of dealing with lagging U.S. smaller stocks, the WisdomTree Europe SmallCap Dividend Fund (NYSEARCA:DFE) is an ideal destination. Quite simply, DFE is thumping in U.S. small-caps this year. The Russell 2000 Index and the S&P SmallCap 600 Index are up an average of 2% year-to-date, while DFE is higher by 19.5%.
Add to that, the WisdomTree ETF has been about 300 basis points less volatile than competing U.S. small-cap indexes and trades at more compelling valuations. Furthermore, DFE’s underlying index has a trailing 12-month dividend yield of 3.6%, which is about triple what investors will find on the Russell 2000. And do not worry about volatility with DFE, as the ETF has been comparably volatile to the Russell 2000 over the last three years.
Industrial, consumer discretionary and financial services stocks combine for almost 58% of DFE’s weight. At the country level, the U.K. and Sweden loom large, combining for about 39% of this dividend ETF’s weight.
Dividend ETFs to Buy: O’Shares FTSE Europe Quality Dividend ETF (OEUR)
Expense Ratio: 0.58%
Among Europe ETFs, the O’Shares FTSE Europe Quality Dividend ETF (NYSEARCA:OEUR) is unheralded, which is likely due to the fact that this fund is still a few weeks shy of its second birthday. Still, this dividend ETF is benefiting from the resurgence in European stocks as highlighted by its $65.1 million in assets under management, $24.5 million of which has flowed into the fund this year.
This dividend ETF tracks the FTSE Developed Europe Qual/Vol/Yield Factor 5% Capped Index. While that is a mouthful, the objective is rather simple. The index’s “high quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines, as may occur with some dividend investing strategies,” according to O’Shares.
This Europe ETF is a large-cap fund as highlighted by an average market value of $23.6 billion and a weighted average market value of $72.8 billion for its holdings. Familiar names found in this dividend ETF include Nestle SA (ADR) (OTCMKTS:NSRGY), Novartis AG (ADR) (NYSE:NVS) and Sanofi SA (ADR) (NYSE:SNY).
Dividend ETFs to Buy: ProShares MSCI Europe Dividend Growers ETF (EUDV)
Expense Ratio: 0.55%
The ProShares MSCI Europe Dividend Growers ETF (BATS:EUDV) follows a methodology that is common with some popular U.S. dividend ETFs, that being an emphasis on dividend increase streaks. In the case of EUDV, this Europe ETF pulls stocks from the MSCI Europe Index that have boosted dividends for at least 10 consecutive years.
Compared to the other ETFs mentioned here, EUDV is a highly concentrated fund with just 45 holdings. This Europe ETF is also concentrated at the geographic level as the U.K. accounts for over 44% of the ETF’s weight, more than triple the weight assigned to Switzerland, the fund’s second-largest country allocation.
Although three countries and just four sectors (industrials, healthcare, consumer staples and consumer discretionary) dominate EUDV, this Europe ETF is equally weighted, a methodology that helps reduce single stock risk. EUDV is up more than 14% this year, making it one of the better-performing Europe dividend ETFs.
As of this writing, Todd Shriber does not own any of the aforementioned securities.