U.S. small-caps have witnessed solid dividend growth in recent years.
From the end of 2013 there has been a 10.2% increase in the number of issues paying a dividend in the S&P SmallCap 600, according to S&P Dow Jones Indices.
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However, few investors are likely to confuse the Russell 2000 and the S&P SmallCap 600 indexes as high-yield destination. The trailing 12-month dividend yield on the iShares Russell 2000 ETF (NYSE:IWM) is just 1.78 percent. As is often the case with large-cap stocks and exchange traded funds, income investors looking for small-cap exposure with dividend compensation can find more impressive yields by looking to international markets.
Such a shopping list should include the WisdomTree Europe SmallCap Dividend Fund (NYSE:DFE). Though it is not a currency hedged ETF, the $1 billion is a play on an ongoing rebound in European stocks and investors are more than adequately compensated for the risk with a distribution yield of 7.65 percent.
Whether looking at the large-cap or the small-cap indexes (displayed above), one typically sees higher trailing dividend yields outside the United States. The Russell 2000 Index had the lowest dividend yield of all the indexes examined above, and the WisdomTree Emerging Markets SmallCap Dividend Index had the highestover 280 basis points higher, in fact. We also think it is impressive that international developed small caps can offer twice the yield of U.S. small caps, as the WisdomTree International SmallCap Dividend Index offered an advantage of over 230 basis point to the Russell 2000, said WisdomTree in arecent research note.
For the investor that perceives the Eurozone as still riskier than the UK and Nordic countries, DFE is a nice option because the ETF allocates over 40 percent of its combined weight to British and Swedish stocks while offering no exposure to Greece.
Income investors looking for the promise, one that is being delivered on, of dividend growth with the protection of a currency hedge can turn to the WisdomTree Japan Hedged SmallCap Equity Fund (NASDAQ: DXJS), the small-cap equivalent of the popular WisdomTree Japan Hedged Equity Fund (NYSE:DXJ).
Japanese investors have traditionally invested a majority of their assets in cash or Japanese government bonds (JGBs), which turned out to be a profitable strategy during a period with little or no inflation. Now, with the governments 2% inflation target, we believe investors will move out of cash and into equities to protect their purchasing power. The WisdomTree Japan SmallCap Dividend Index offered a yield advantage over four times that of the JGB yield, which we believe should be very enticing, according to WisdomTree.
For a while after its late June 2013 debut, DXJS toiled in obscurity, but the thought process behind this ETF has been vindicated as nearly $197 million in assets under management confirm. Importantly, $88 million, or 44.6 percent of its current AUM total, has comeinto DXJS this year. The ETF's distribution is just 1.49 percent, but that is better than what investors get on benchmark Japanese government bonds.
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