Capital Ideas

Investment insights from Capital Group

Dividends are on the rise in emerging markets

Relatively low payout ratios in emerging markets leave room for even more dividend growth

When considering reasons to invest in emerging markets, dividends may not be near the top of the list — but perhaps they should be. Since 2003, emerging markets have grown dividends by an average of 7.6% per year. This is faster growth than in developed markets (6.3%), especially countries within the MSCI EAFE Index (5.1%).

Portfolio manager Shaw Wagener believes these should be areas of focus. “Over the years, we have found that emerging markets companies that pay dividends quite often turn out to be superior investments. As they mature, we expect dividends to play a more prominent role in total return,” Wagener says. Relative to the rest of the world, emerging markets payout ratios are low, so there may be more room for growth as earnings rise.

Past results are not predictive of results in future periods.

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