This article was originally published on ETFTrends.com.
By Matt Wagner, CFA
Associate, Research
Value has trounced growth globally this year. High dividend yield companies, which tend to have high overlap with value indexes, have also outperformed.
The first quintile of companies in the MSCI ACWI Index by dividend yield has outperformed the fifth quintile by over 1,600 basis points (bps) and outperformed non-payers by over 1,900 bps.
Year-to-Date MSCI ACWI Index
Many investors are familiar with investing in search of dividend income when allocating to U.S. equities. Some may be less familiar with the global dividend investment opportunity—particularly when it comes to emerging markets.
The below table summarizes some key data points for dividend payouts across the globe.
Of the $1.4 trillion in the global Dividend Stream, $216 billion, or 15%, comes from companies within emerging markets. That amount is just over 3.5% greater than the 11.5% weight that emerging markets have in the market cap-weighted MSCI ACWI IMI Index.
The U.S., on the other hand, comprises just 43% of the global Dividend Stream but accounts for 60% of market cap. In part that is because the U.S. has higher valuations, and much less of its market cap weight is in companies paying a dividend.
In emerging markets, 85% of the market cap is in companies paying dividends. In the U.S., the comparable number is just 72%.
As a result of the lower weight of companies paying a dividend, the U.S. has a dividend yield of just 1.4%—a full 100 bps lower than the yield of emerging markets.
The difference is even greater when weighting companies by their Dividend Stream instead of market cap. The emerging markets has a Dividend Stream-weighted yield of 6% compared to just 3% for the U.S.
Global Dividend Stream
We can break down the U.S. and emerging markets market-cap weights and Dividend Stream weights on a sector level to get an indication of where dividend payouts are more concentrated.
In the U.S., the largest dividend sectors are Financials (17%), Information Technology (15%), Health Care (13%) and Consumer Staples (10%).
Sector Weights: Market Cap-Weighted vs. Dividend-Weighted (MSCI USA IMI Index)
In the emerging markets, the largest dividend sectors are Financials (26%), Materials (16%), Information Technology (17%) and Energy (10%).
The combined dividend weights of Materials and Energy (26%) make a dividend-weighted exposure to emerging markets much more commodity-sensitive than the tech- and consumer-heavy allocations of market cap-weighted emerging markets exposures.