How to Tap Into European Dividend Growth

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Data indicate dividends around the world, including developed and emerging markets, are slated to grow this year. By some estimates, dividend growth in the U.S. is expected to be 8%, but payout growth is forecast to be higher in Europe.

The ProShares MSCI Europe Dividend Growers ETF (CBOE: EUDV) can help investors access European equities with steady track records of rising payouts. EUDV follows the MSCI Emerging Markets Dividend Masters Index, which targets MSCI Emerging Market components that have increased dividend payments each year for at least seven consecutive years.

Market observers project earnings per share growth for European stocks to remain strong and build upon the success over the first two quarters of the year. In the first half of the year, earnings upgrades were broad and far reaching instead of concentrated to specific areas. Since October 2016, trailing 12-month EPS of European stocks are up to double digits, and since July of last year, 12-month forward EPS expectations are up by a similar amount as well due to a strengthening global economy.

Deespite the recent rally in European equities, valuations still look attractive relative to domestic stocks. On a forward earnings basis, European stocks have gotten cheaper continually since 2015, and price-to-book value for the region shows European names trading at a multi-year discount to the U.S.

Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.

“Due to a spate of dividend cuts and suspensions during the global financial crisis, the universe of European equities with long-running dividend increase streaks has been whittled down, in part explaining EUDV’s relatively small roster of 42 stocks,” reports InvestorPlace. “That also leads to a highly concentrated fund at the geographic level with the U.K. and Switzerland combining for almost 55% of this Europe dividend ETF’s weight. EUDV devotes over 45% of its combined weight to the consumer staples and healthcare sectors, which in ex-Eurozone Europe, have been steady dividend growers in recent years.”

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