No one can argue that European equities have had a tumultuous ride over the last couple of years, as the eurozone sovereign-debt crisis continues to plague the region. Although the European Central Bank detailed its most aggressive plan to date to deal with the eurozone's mounting debt piles last month, investors still remain understandably weary of this corner of the market. And since many economies in the region continue to teeter on the edge of default (or forced bailouts), investors will likely wait until more concrete developments are made before diving back into this once steady and rewarding sector . Amidst the seemingly never-ending eurozone drama, however, there have been some surprising bright spots in the space: Europe Dividend ETFs. These products have managed to maintain their footing, while at the same time provide investors with relatively handsome dividend yields. Currently, there are only two funds whose sole objective is to target dividend-paying companies from Europe. And while these two ETFs focus on the same geographical region, their methodologies, portfolio composition and resulting dividend yields are noticeably different.

STOXX European Select Dividend Index Fund (FDD)

This offering from First Trust offers investors exposure to 30 of the highest-dividend yielding stocks from roughly 18 different European countries. Considering that FDD's underlying index is dividend-weighted, it is perhaps not surprising to find nearly 45% of the fund's total assets allocated to the its top 10 securities, making the 30-stock portfolio rather top-heavy along and relatively shallow. Although FDD's portfolio composition might deter some investors, its ability to deliver juicy yields to its investors may prompt some to give this fund a closer look. Currently, FDD's annual dividend yield is 4.98%, the highest among the Europe-specific dividend ETFs .

Taking a closer look at FDD's portfolio reveals that holdings are roughly equally split between giant, large and mid-cap stocks. The majority of assets are allocated to the financial and communication services sectors, while utilities and industrials also make up a hefty chunk of FDD's portfolio. In regards to specific country allocations, stocks from the United Kingdom account for nearly 45% of total assets, but heavy weightings are also given to France, Germany and Switzerland.

Europe SmallCap Dividend Fund (DFE)

WisdomTree's DFE allows investors to make more of a pure play on the European economy, while at the same time maintaining relatively high dividend yields. DFE invests in small cap European stocks, an asset class that is often overlooked by most Euro-focused ETFs. Because their performance is generally more closely tied to local consumption, small caps often allow investors to gain better access to the local economies of the region. The methodology behind DFE's underlying index involves selecting the bottom 25% of the market capitalization of the WisdomTree Europe Dividend Index after the 300 largest companies have been removed. Companies are then weighted in the index based on annual cash dividends paid.

The resulting portfolio contains over 300 individual securities, with only about 13% of total assets lying in the top ten holdings. DFE is heavily tilted towards industrials, which make up over a quarter of the portfolio. Significant allocations are also made to consumer cyclical, technology and financial services sectors. Top country weightings include the United Kingdom, Italy, Germany and Sweden. Currently, DFE's annual dividend yield comes in at 3.65% .

Follow me on Twitter@DPylypczak

Disclosure: No positions at time of writing.

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. Insurance

    Top 6 Car Insurance Companies in New York

    Read about the top private auto insurers licensed to operate in New York, and learn about recent trends in market share among these companies.
  8. 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.
  9. 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.
  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. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
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 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 >>
  4. 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 >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... 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!