For advisors and their clients who favor dividend-paying equities, a number of exchange-traded funds focus on such stocks across Europe.
As is usually the case, they differ greatly in approach.
Here are some choices:
1. Deutsche X-Trackers MSCI Eurozone High Dividend Yield Hedged Equity ETF (HDEZ) tracks an underlying index that requires consistent dividend payments and screens for quality factors, including return on investment, earnings variability and debt to equity. The highest-yielding issues are included, and the index is weighted by market capitalization. Currency is hedged.
2. First Trust STOXX Europe Dividend Index Trust (FDD) is based on a 30-stock subset of the STOXX Europe 600 index. To qualify, stocks must have a five-year positive dividend growth rate and pay 60% or less of earnings in dividends. Stocks are sorted by country and ranked by dividend yield. The index is dividend-weighted.
3. O’Shares FTSE Europe Quality Dividend ETF (OEUR) seeks to replicate an index of European stocks whose constituents are determined by quality, volatility and yield factors. Quality is determined by return on assets, leverage and other elements. Volatility is measured by the standard deviation of five years of weekly total returns in local currency. Yield is weighed by the logarithm of each company’s 12-month trailing dividend yield. Positions are capped at 5%.
4. O’Shares FTSE Europe Quality Dividend Hedged ETF (OEUH) holds the same portfolio as the O’Shares FTSE Europe Quality Dividend ETF but with currencies hedged.
5. ProShares MSCI Europe Dividend Growers ETF (EUDV) tracks the MSCI Europe Dividend Masters Index, which holds stocks of 25 or more large- and mid-cap companies that have boosted dividends for at least 10 consecutive years. There are caps on sectors and countries, and the portfolio is equal-weighted.
6. WisdomTree Europe Hedged Equity (HEDJ) is based on an index of dividend-paying stocks domiciled in Europe and traded in euros. Stocks must have a market cap of at least $1 billion and derive at least 50% of revenue from outside Europe. There are caps on individual issues, sectors and countries. The portfolio is weighted by cash dividends and is currency-hedged.
7. WisdomTree Europe Hedged SmallCap Equity (EUSC) tracks an index of European dividend payers, traded in euros, that are in the bottom 10% of the WisdomTree International Equity Index. There are caps on individual issues, sectors and countries. The portfolio is weighted by cash dividends and is currency-hedged.
8. WisdomTree Europe Quality Dividend Growth Fund (EUDG) underlying index doesn’t actually require dividend growth, despite its name. “Growth” here refers to long-term earnings expectations. There is also a quality screen that looks at three-year historical ROA and ROE. The underlying index uses these factors to select 300 stocks from the WisdomTree International Equity Index. The portfolio is weighted by cash dividends and isn’t hedged.
9. WisdomTree SmallCap Europe Dividend Fund (DFE) tracks the bottom 25% of the WisdomTree International Equity Index after the 300 largest-cap companies are removed. The portfolio is weighted by cash dividends and isn’t hedged.
These ETFs provide advisors with numerous alternatives such as currency-hedged or exposed, small-cap or large, and quality screened or all-inclusive.
Joseph Lisanti, a Financial Planning contributing writer in New York, is a former editor-in-chief of Standard & Poor’s weekly investment advisory newsletter, The Outlook.
This story is part of a 30-30 series on smart ETF strategies. It was originally published on Nov. 17, 2015.
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