Dividend payouts comparable to mature markets are joining growth as a benefit of buying emerging-market stocks.
"Cash flow is strong and there are more stable companies [in the emerging markets], so it's natural they are paying more," Jerry Zhang, portfolio manager of the Wells Fargo Advantage Emerging Markets Equity Fund, which holds around $1.1 billion in developing-world stocks, told The Wall Street Journal.
Fueled by fast growth and comparatively good balance sheets, emerging-market equities, on average, will pay a 2.6 percent annual dividend this year, according to estimates from Citigroup, increasing their appeal to conservative investors who now receive 2.7 percent from their investments in U.S. and European equities.
The fact that emerging market stocks do pose currency and country-specific political risks, and such strong dividend growth depends on a steady global economic recovery, isn’t stopping analysts from recommending them.
UBS strategist Jeffrey Palma said in a recent note to clients on emerging-market stocks that "dividends could grow by 15.4 percent and 17.7 percent in 2010 and 2011, respectively, as earnings rebound ... and as company leverage levels are expected to be exceptionally low."
Investors receive the highest yields in defensive sectors such as utilities and telecommunications. For example, China Mobile Ltd. shares were recently yielding 6 percent, while Turkish telecommunication company Turk Telekomunikasyon AS were yielding 8 percent.
“This month’s rebound by stocks is running ahead of economic fundamentals,” Wei Wei, an analyst at West China Securities Co. told Bloomberg.
“Disappointing earnings figures from some companies may lead to weak expectations about the second half of the year.”
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