Income investors looking for rosy 2018 dividend growth projections may want to consider Europe. Sure, U.S. dividends are expected to grow 8% this year, but better growth rates are forecast across the Atlantic.
In fact, Europe is expected to lead dividend growth among developed markets this year. Even amid the fallout from Brexit, U.K. payouts are expected to jump 10% this year while Eurozone dividend growth is expected soar 15%, according to Markit data.
Plus, investors will, generally speaking, find higher yields on European equities and the related exchange-traded funds (ETFs) than they see on U.S. equivalents. For example, the widely followed EURO STOXX 50 Index has a dividend yield of 2.26%, which is more than 30 basis points above the dividend yield on the S&P 500.
The following ETFs can help U.S. income investors tap resurgent European dividends.
Europe Dividend ETFs: O’Shares FTSE Europe Quality Dividend ETF (OEUR)
Expense Ratio: 0.58% per year, or $58 on a $10,000 investment.
12-Month Yield: 2.9%
The O’Shares FTSE Europe Quality Dividend ETF (NYSEARCA:OEUR) is often overlooked among Europe dividend ETFs, but there are credible reasons why this fund should have a higher profile among Europe dividend strategies. Notably, OEUR is a solid idea for conservative income investors because the fund emphasizes low volatility stocks with quality traits.
Over the long-term, lower-volatility stocks typically outperform their more volatile peers while the quality factor is essential in evaluating the balance sheets and dividend growth companies both foreign and domestic.
OEUR is not a dedicated Eurozone ETF, as it allocates over 47.5% of its weight to the U.K. and Switzerland, but that is alright because those are two of Europe’s steadiest dividend-growth markets. France, a market poised for impressive dividend growth this year and the Eurozone’s second-largest economy, is 16% of this dividend ETF’s weight.
None of OEUR’s holdings account for more than 4.88% of the ETF’s roster and the fund yields 2.56%.
Europe Dividend ETFs: First Trust STOXX European Select Dividend ETF (FDD)
Expense Ratio: 0.6%
12-Month Dividend Yield: 2.6%
The First Trust STOXX European Select Dividend ETF (NYSEARCA:FDD) is a concentrated ETF on multiple levels. For example, this Europe dividend fund holds just 31 stocks and just three countries — France, the U.K. and Switzerland — combine for over 55% of FDD’s geographic exposure.
The $563.7 million FDD, which is over a decade old, follows the STOXX Europe Select Dividend 30 Index. Although this Europe ETF offers some dividend growth prospects, it is more of a yield play as highlighted by a dividend yield of almost 5% on its underlying index.
FDD devotes about 36% of its combined weight to energy, real estate and utilities, which are all high-yielding groups in Europe. Over the past three years, FDD has been slightly less volatile than the S&P Europe 350 Index.
Europe Dividend ETFs: WisdomTree Europe Quality Dividend Growth Fund (EUDG)
Expense Ratio: 0.58%
12-Month Yield: 2.5%
Whether it is in the U.S. or Europe, the quality traits associated with steady dividend growers can serve long-term income investors. The WisdomTree Europe Quality Dividend Growth Fund (NYSEARCA:EUDG) taps into that theme. EUDG tracks the fundamentally-weighted WisdomTree Europe Quality Dividend Growth Index which employs growth and quality factors.
“The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets,” according to WisdomTree.
The focus on dividend growth rather than yield leaves EUDG’s index with a dividend yield of 2.5%, which is decent thought not spectacular. That is alright because data suggest EUDG’s strategy works. Over the past year, three years and since debuting in the first quarter of 2014, EUDG’s benchmark has topped the MSCI Europe Index.
This Europe ETF holds 200 stocks and allocates about 41.5% of its combined weight to the U.K. and Switzerland.
Europe Dividend ETFs: WisdomTree Europe SmallCap Dividend Fund (DFE)
Expense Ratio: 0.58%
12-Month Yield: 2.4%
Smaller stocks can be part of the Europe dividend equation and the WisdomTree Europe SmallCap Dividend Fund (NYSEARCA:DFE) is the king of such ETFs. In fact, investors looking for small-cap exposure may want to consider DFE over rival U.S. small-cap ETFs. Historical data confirm as much.
Over the past three years, DFE is up 40.5% while the average return over that period for the Russell 2000 Index and the S&P SmallCap 600 Index is about 32%. Additionally, DFE has been comparably volatile to those U.S. small-cap benchmarks, indicating this fund’s risk-adjusted returns have been superior to those of U.S. small-caps.
Plus, DFE is a better yield play than traditional U.S. small-cap funds. Good luck finding a dividend yield of 3.6% on a Russell 2000 tracking fund. That is the yield on DFE’s underlying index. DFE holds about 400 stocks with the U.K., Sweden and Italy combining for over 48% of the fund’s weight.
Europe Dividend ETFs: ProShares MSCI Europe Dividend Growers ETF (EUDV)
Expense Ratio: 0.55%
12-Month Yield: 2.3%
The ProShares MSCI Europe Dividend Growers ETF (BATS:EUDV) employs a strategy that is used on some popular U.S. dividend ETFs, that being a requirement that member firms have boosted dividends for at least 10 consecutive years.
Due to a spate of dividend cuts and suspensions during the global financial crisis, the universe of European equities with long-running dividend increase streaks has been whittled down, in part explaining EUDV’s relatively small roster of 42 stocks.
That also leads to a highly concentrated fund at the geographic level with the U.K. and Switzerland combining for almost 55% of this Europe dividend ETF’s weight. EUDV devotes over 45% of its combined weight to the consumer staples and healthcare sectors, which in ex-Eurozone Europe, have been steady dividend growers in recent years.
Europe Dividend ETFs: SPDR STOXX Europe 50 ETF (FEU)
Expense Ratio: 0.29%
12-Month Yield: 2.7%
The SPDR STOXX Europe 50 ETF (NYSEARCA:FEU) is not a dedicated dividend ETF, but this Europe fund is a credible dividend destination. FEU’s underlying index, the STOXX Europe 50 Index, has a dividend yield of 3.6%.
FEU is another U.K./Switzerland-heavy fund as those countries combine for almost 52% of the 50 stocks found in this $278 million Europe ETF.
While FEU allocates nearly 39% of its combined weight to the consumer staples and healthcare sectors, this Europe ETF is also a play rebounding European bank stocks. A previously controversial market segment, some European banks have been dividend offenders, but some market observers believe European bank payouts are poised to rebound and grow. That could help FEU, which allocates over 24% of its weight to bank stocks.
Europe Dividend ETFs: iShares MSCI Switzerland ETF (EWL)
Expense Ratio: 0.49%
12-Month Yield: 2%
Aside from the U.K., one of the countries has popped up throughout this piece is Switzerland. That could mean tactical dividend investors may want to consider the iShares MSCI Switzerland ETF (NYSEARCA:EWL), the largest U.S.-listed Switzerland ETF.
EWL, which tracks the MSCI Switzerland 25/50 Index, is one of the oldest single-country ETFs as it is just a few weeks shy of its 22nd birthday. This Europe ETF’s 12-month dividend yield of 2% is barely above that of the S&P 500, but that also reflects Switzerland’s status as a dependable dividend growth market rather than a high-yield destination.
While EWL holds 37 stocks, Nestle AG (OTC:NSRGY), Novartis AG (NYSE:NVS) and Roche AG combine for about 43% of the fund’s weight. Conservative investors will also like the fact that Swiss stocks are not volatile compared to other ex-U.S. markets. EWL has a three-year standard deviation of less than 11.3%.
As of this writing, Todd Shriber did not own any of the aforementioned securities.