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Europe is the ‘land of equity yield.’ These funds can give U.S. investors a slice of the payouts


European companies are doubling down on returning cash to shareholders, according to Morgan Stanley, and there are options for investors on the other side of the Atlantic who want to add more yield to their portfolio. Morgan Stanley strategist Chelsea Tabe said in a note to clients last week that Europe has become the “land of equity yield.” “Europe has tended to offer a higher dividend yield than global peers, but a low or negative net buyback yield meant the region’s total yield often lagged,” Tabe said. “However, European companies spent a record $200bn on share repurchases over the last 12M, and the region has seen a bigger increase in buyback activity over the last 5Y than anywhere else.” “In 2022 Europe offered investors the highest total yield of any major region, and our analysts’ projections suggest this is likely to be repeated in 2023. Europe now offers a total yield of 4.6%, almost 1.5x the US market,” Tabe added. And while dividend yields can sometimes be a trade off for significant upside, the dividend yield factor has outperformed the broader market over the past three years in the U.S. and Europe, according to Morgan Stanley. Owning individual European stocks can be tricky for U.S. based investors, but there are many exchange traded funds that offer exposure to the continent’s dividend paying companies. The biggest of the group is the WisdomTree Europe Hedged Equity Fund (HEDJ) , according to VettaFi, with more than $1 billion in assets. HEDJ has a total return of more than 17% year to date, with a distribution yield of 3.5% over the past year, according to FactSet. The fund has an expense ratio of 0.58%. HEDJ YTD mountain The HEDJ ETF has a total return of more than 17% in 2023. The hedged component of the fund refers to currency hedging, designed to neutralize the impact of changes in the euro relative to the dollar. As the dollar strengthens, dividends paid in euros are less valuable to U.S. investors. There are also smaller WisdomTree funds that offer different flavors of European dividend stocks. That includes the Europe Quality Dividend Growth Fund (EUDG) and the Europe Small Cap Dividend Fund (DFE) , though both have underperformed HEDJ in 2023. The largest fund in the category outside of the WisdomTree family is the First Trust Stoxx European Select Dividend Index Fund (FDD) , with more than $180 million in assets. FDD has a total return of just 2.7% this year, but its distribution yield over the past 12 months is 6.7%, according to FactSet. — CNBC’s Michael Bloom contributed reporting.

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