The emerging market stocks have been the hot commodity amongst equity investors in 2010, as money has found its way back to the growth regions of the world. The MSCI Emerging Markets Index is up 12.5% versus a gain of 9% for the S&P 500.
IN PICTURES: 9 Simple Investing Ratios You Need To Know

Because investors have realized that consistent big gains in stocks may no longer be the norm, they are also seeking high dividend yields. So why not put the two together: emerging market and high yields?

This has led me to search out emerging market stocks that offer growth as well as above-average dividend yields. Surprisingly there are more stocks that fall into this category than most would realize. And they are listed below.

All Encompassing ETF
The WisdomTree Emerging Markets High-Yielding Equity ETF (NYSE:DEM) is a one-stop option for investors that are seeking emerging growth exposure combined with a solid dividend yield. Since the ETFs inception in July 2007, DEM has outperformed 99% of all emerging market funds. The ETF is up 19% in 2010 and currently has a distribution yield of 4.4%. (For more, see A Dose Of International Dividends.)

The country makeup is heavily weighted towards Brazil (19%) and Taiwan (18%), but there is also exposure to Turkey, South Africa and Israel. When looking for high dividend paying stocks there are two sectors that typically offer the best yield - telecoms and financials. The two sectors make up 45% of the allocation of DEM.

DEM is a great choice for investors who do not want to take on company-specific risk. (For more, see Going International.)

Three Stocks
An easy way for investors to discover new stock ideas is to look at the top holdings of an ETF you like as an investment. I did just that with DEM and came up with three stock ideas.

The number two holding of DEM is Taiwan Semiconductor (NYSE:TSM), a large semiconductor company that supplies chips to numerous sectors around the globe. TSM currently pays a 3.3% dividend and trades at a reasonable forward P/E ratio of 11.8 and a PEG ratio of 0.75. Fundamentally TSM is attractive, but if the entire chip sector slows, TSM will fall with the masses. This is a high-risk play in the current environment.

Ambev (NYSE:ABV), based in Brazil, is one of the largest brewers in South America and is known for its Skol, Brahma and Antarctica brands of beers. The company also has a deal with Anheuser-Busch Inbev (NYSE:BUD) to distribute Budweiser products in Canada. The current dividend is 2.1% and the stock is sitting just below an all-time high after rallying nearly 40% in 2010. The forward P/E ratio is 18.2 and the PEG ratio is 1.65. ABV is clearly a leader in its sector, but must pullback more to make it a more attractive buying situation. (For more, see Beeronomics: Factors Affecting Your Pint.)

Chunghwa Telecom (NYSE:CHT) is another Taiwanese company that provides a variety of telecom and internet services throughout the country. The stock has had a solid 2010, gaining 35% and offering a 4.0% dividend yield. The forward P/E is only 16.3 even after the rally, but the PEG ratio is an abnormally high 7.3 based on lower growth estimates. If the stock pulls back to the low $20's it could be considered a buy again.

Bottom Line
The astute investor can continue to comb through the holdings of DEM and pick out a few stocks to build their own small ETF. However, most investors are better off with simply buying DEM and taking away the extra risk and time involved with individual stocks. (For more, see 4 ETF Strategies For A Down Market.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Asia 50

    Read more about BlackRock's iShares Asia 50 Fund, an ETF that follows the four "Asian Tiger'' nations plus China.
  2. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  3. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International LargeCp Div

    Learn more about the WisdomTree International LargeCap Dividend fund, an income-based international equities ETF that focuses heavily on the United Kingdom.
  4. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  7. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  8. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  9. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!