The Surprising Source for Big Dividends

For a long time, investors looked to emerging-market stocks to provide outsized growth and stellar returns on stocks. But as emerging markets have matured, smart investors have realized that the same arguments in favor of dividend-paying stocks in the U.S. and other developed countries apply just as well to emerging countries.

Where the dividends are
A recent story in Barron's talked about the emergence of dividends in emerging markets. Looking around the globe, Europe accounted for the largest total payout of dividends, at $361 billion. The U.S. weighed in at $254 billion, while Asian companies paid out about $175 billion.

More important than those raw numbers is where dividend payouts are growing the fastest. Despite a fairly healthy environment for companies around the world, emerging-market stocks increased their dividends by nearly 55% in the past year. That figure easily eclipses the 26% increase among European companies and the meager 12.6% increase for U.S. stocks.

What that means is that if you need income from your investments, you no longer have to pass up emerging-market stocks entirely. But what's the best way to home in on exactly the stocks you want in your portfolio?

The easy way to discover emerging dividends
As so often happens with newly popular trends, you can count on the exchange-traded fund industry to give you a simple way to cash in on dividend stocks in emerging markets. The WisdomTree Emerging Markets Equity ETF (NYSE: DEM  ) offers a portfolio of promising dividend payers at a fairly reasonable cost. Among the stocks that the ETF identifies as the best of the bunch are the following:

  • AmBev (NYSE: ABV  ) , the Brazilian arm of Anheuser-Busch InBev, has seen its net income jump 30% annually over the past five years -- supporting a big dividend increase of almost 14% per year over that time.
  • Banco Santander Brasil (NYSE: BSBR  ) , the Brazilian bank in which Spain's Banco Santander (NYSE: STD  ) owns an 81% stake, pays a healthy yield of 4.3% -- without the European risk of its infamous Spanish parent.
  • Vodafone (Nasdaq: VOD  ) has a big presence not only in developed nations around the world but also in South Africa. Not only does Vodafone already pay a healthy dividend, but the telecom giant will receive a huge $4.5 billion payment from its Verizon Wireless joint venture in January.

Invest in the WisdomTree ETF, and you'll get a stake in more than 280 stocks like these. At an expense ratio of 0.63% annually, it's not the cheapest ETF in the world, but since the ETF gives you access to many stocks that don't even trade on U.S. exchanges, the extra cost may well be worth it -- especially with a dividend yield of 4.5% for the ETF over the past 12 months.

Venturing out on your own
But you don't have to rely solely on an ETF to get good ideas for emerging-market stocks with good dividends. By considering global trends you already know about, you can unearth some pretty healthy dividend payers.

Take the global oil market, for instance. Despite a minor pullback in oil prices, few expect the cheap oil days of the 1990s ever to return. That makes new oil discoveries that much more important, both to oil companies and to the locations where they find previously undiscovered energy reserves.

Brazil has recently been at the forefront of new oil finds. With Petroleo Brasileiro (NYSE: PBR  ) poised to cash in on offshore discoveries, its already generous dividend yield of nearly 4% could well increase dramatically in the years to come. The money should start to flow even faster as Petrobras builds partnerships with international service providers like the Bermuda-based, Norwegian-born SeaDrill (NYSE: SDRL  ) -- which itself pays a 9% dividend.

Look outside your backyard
If you've chosen to ignore emerging markets as risky, growth-focused hotbeds of speculation, think again. As emerging markets have grown, they've spawned maturing stocks that have the same desirable characteristics you expect in all your dividend stocks. Combine this with their growth potential, and emerging-market dividend stocks might be exactly what you need to round out your income portfolio.

You can also find great dividend stocks closer to home. Take a look at the Fool's latest special free report to discover 11 smart dividend picks for your portfolio.

Fool contributor Dan Caplinger wants to tour all the emerging markets. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Petroleo Brasileiro and Vodafone. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is always developing for you.


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  • Report this Comment On November 02, 2011, at 3:10 PM, hbofbyu wrote:

    Good suggestions.

    It has been neglected by the press, but a large component of the anemic economic recovery is the high price of oil. We are paying 30-40% more than we have in the prosperous times.

    Until a disruptive techonolgy appears - and it's not wind, and it's not solar - oil will continue to dominate the world economy. If you don't have energy/oil stocks as part of your portfolio and investment strategy, you aren't very smart.

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