Sweden: Europe's Best Yields

10/23/2014 10:00 am EST

Focus: ETFs

People think of Sweden as a heavily Socialist country with very high taxes; but right now Sweden has the best "country yield"—the dividend yield of a basket of a country's top corporations—of any company on the European continent, notes Martin Hutchinson in Income Without Borders.

The iShares MSCI Sweden Fund (EWD) currently yields a generous 3.7%; that's impressive given the 1.8% yield on the Standard and Poor's 500 Stock Index (SPX).

Meanwhile, Sweden's economy is growing faster than the US economy. And at 16 times trailing earnings, it's reasonably priced. Not bad for a "socialist paradise," as Sweden is sometimes called.

For two reasons, there's a lot more to the Swedish economy than meets the eye:

First, since the 1930s, the Wallenbergs, a capable and aggressive dynasty, have controlled much of Swedish industry (through charitable foundations).

Second, since a financial crisis in the early 1990s, the top Swedish rate of income tax, once well over 70%, is now down to 56%, when you add in municipal taxes.

Sweden's economy is doing very well by European standards these days. The International Monetary Fund projects 3% growth for 2014 and 3.3% growth for 2015, third fastest among the 28 countries in the EU, just behind Ireland and Poland.

As with the United Kingdom, maintaining its own currency has helped Sweden's economy by letting the country steer clear of the Euro's instability.

In most respects, the Swedish economy resembles Germany's, with a heavy orientation towards specialty manufacturing and a high level of engineering skill and product quality.

The iShares Sweden fund's high yield results from an important cultural difference: Swedish top managers are less well paid than US CEOs and don't receive such generous stock options; so they remain more shareholder-oriented, paying out more earnings in dividends.

Given its merits for yield, growth, and international diversification, the iShares MSCI Sweden Fund is an good place for income-oriented US investors to place a portion of their money.

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