Posted inAsset Class in Focus

Dont overlook EM dividends

Roughly 90% of companies represented in the MSCI Emerging Markets Index pay dividends, according to a research note by Capital Group.
Emerging markets

The average dividend yield of the MSCI Emerging Markets Index at the end of 2014 was 2.95%, greater than that of Standard & Poor’s 500 Composite Index and the MSCI World Index, the firm said.

More than one-third of emerging market stocks had a dividend yield greater than 3%.

“These dividends have been an important contributor to total returns for emerging market companies.”

Dividends Have Reduced the Impact of Share Price Declines in Emerging Markets

Results Relative to the MSCI Emerging Markets Index (%)

For the 15 years ended December 31, 2014, the MSCI Emerging Markets Index returned 240%, 49 percentage points of which came from dividends. 

“As emerging market companies continue to mature in their capital structure, we expect dividends to play a more prominent role in total return.

“More important, perhaps, is the role that dividends have played recently in dampening volatility and reducing the impact of market weakness.”

Three piles of money

Ignoring dividend yield is like having “three piles of money on the table and deliberately taking just two”, said Anthony Cragg, manager of the Wells Fargo China Equity and Emerging Market Equity Income funds, in an interview with sister publication International Adviser.

“All other things being equal – where there is good management, good profit margins and cash-flow generation – we find that investing in dividend-paying companies is like investing with a constant tailwind.”

Part of the Mark Allen Group.