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If you’re looking for yield within the U.S. markets, you’re probably stuck looking through areas, such as junk bonds, REITs, MLPs or closed-end funds. The 10-year Treasury yield is just 0.7% and the S&P 500 earns a modest 1.7%.
Needless to say, if you want anything resembling a decent yield, you’ll need to consider looking outside of the U.S. as well.
Emerging markets have been dead money for about 13 years. Many investors don’t consider these economies for dividends, if at all. But there are actually some fairly attractive yields available if you’re willing to accept a little risk in the process.
The key is to focus on companies with higher quality balance sheets, healthy cash flows and predictable dividends. Like just about everywhere else in the world, high yield can be risky right now, but there are ways to mitigate that risk.
If you’re looking for a yield boost in your portfolio, here are three emerging markets ETFs that focus on more mature, developed companies, while offering a yield of at least 5%.
Pacer Emerging Markets Cash Cows 100 ETF (ECOW)
ECOW is just one of the Pacer family’s “cash cow” series of ETFs. These funds are unique in that they use the free cash flow yield as their targeting criteria. This strategy identifies cash-rich companies with the financial means to pay and grow their dividends over time.
ECOW tends to be a deep value portfolio (it has a P/E ratio of 11), but its components have a much higher yield and a much higher dividend growth rate, making them ideal for dividend seekers.
The fund’s current dividend yield is 5.2%.
WisdomTree Emerging Markets High Dividend ETF (DEM)
This is one of my favorite emerging markets ETFs, but it can be a bit on the riskier side. It starts by looking at the broad emerging markets dividend-paying stock universe and selects those in the top 30% ranked by dividend yield.
Pure high yield strategies haven’t been rewarded and this fund is down 20% year-to-date. But, like ECOW, it has a forward P/E ratio of only 9 and pays a dividend yield of 5.3% currently.
This fund uses a similar strategy to DEM, but follows a different index. It ends up targeting 100 leading dividend-paying EM stocks with a few filters, including eliminating REITs.
DVYE’s portfolio ends up looking similar to the two funds already mentioned – deep value, high yield and low growth. The fund currently has an extraordinarily low P/E ratio of just 7 and has an annualized dividend yield of 8.1%.
It would be an understatement to say that these funds are out of favor with current market trends. High yield has been getting hammered following a slew of COVID-related credit downgrades and defaults. With investors preferring only high quality dividend yields, these three funds have been effectively tossed to the curb. Each is down well over 10% year-to-date compared to the -3% return of the broader emerging markets index.
With growth and tech falling further out of favor in recent days, however, interest in dividend payers has renewed. It’ll probably take some time for these strategies to play out and you’ll want to take a long-term perspective with them, but the 5-6% dividend yields and single-digit P/E ratios make them an interesting yield play.