By The ETF Professor
Income investors looking for allocations to international markets have options and perhaps even more than they initially realize. Some global markets are not known for dividend excellence. Japan and South Korea come to mind. Others such as volatile Russia are trying to climb the dividend ladder.
Those looking for a more conservative approach can opt for a developed market basket ETF such as the PowerShares International Dividend Achievers Portfolio (PID), which features a distribution yield of almost four percent. However, none of those options offer exposure to arguably one of the unheralded dividend regions in the world: The Middle East. Specifically, Qatar and the United Arab Emirates.
Those two countries have been spent plenty of time in the limelight this year not just because their equity markets have been soaring, but also because both were recently promoted to emerging markets status from frontier territory. That is a feather in the caps of those markets to be sure, but some investors may not realize the potential income stream offered by Qatar and the UAE. The WisdomTree Middle East Dividend Fund (GULF) has a 30-day SEC yield of just over five percent.
With the promotion to emerging markets status, it is expected that Qatar and the UAE will be on the receiving end of increased foreign direct investment, which could serve as a catalyst for increased dividends. Before the countries received that promotion, HSBC estimated the two countries could see a combined $800 million in near-term inflows, while BNY Mellon puts the number as high as $3 billion.
At the end of May, the respective dividend streams for Qatari and UAE firms in the WisdomTree Middle East Dividend Index, GULF's underlying index, were almost $5.3 billion and over $2.6 billion, respectively, according to WisdomTree data. Those two countries combine for 56.5 percent of GULF's weight. Kuwait, 17.3 percent of GULF's weight, also offers a dividend stream north of $2 billion.
UAE and Kuwait "have a respectable Dividend Stream of over $2 billion and are fairly represented in the Index with 15 and 17 companies, respectively. It is interesting that these two countries together have a smaller Dividend Stream than Qatar even though, collectively, they have a larger market cap," WisdomTree Research Director Jeremy Schwartz in a note.
Although there is dividend opportunity with these markets, investors looking to exploit that opportunity would be best served sticking with an ETF such as GULF. The reason is that when Qatar and the UAE are added to the MSCI Emerging Markets Index next, the countries will only represent a sliver of that popular index.
Additionally, Schwartz said, "It is important to note that WisdomTree has no plans to add these countries..." to the WisdomTree Emerging Markets Equity Income Index, the underlying index for the $4.66 billion WisdomTree Emerging Markets Equity Income Fund (DEM).
"It is impossible to know what the new country weights are going to be in the future, but we do know that market participants will need to add exposure to Qatar and the United Arab Emirates," Schwartz added.
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