European Small Caps with High Yields


Carla Pasternak Image Carla Pasternak Editor, The Income Investor

Based on forward p/e and cash flow multiples, European shares are trading at very attractive price levels versus U.S. equities, according to Dr. Carla Pasternak, editor for Dow Theory Letters' The Income Investor.

Despite concerns about Brexit and France's anti-EU presidential candidate Marine Le Pen, investors are driving up European stocks.

Robust fundamentals out of Europe are supporting higher share prices. The region's fourth-quarter profit growth was the strongest in two years, outpacing U.S. growth.

STOXX Europe 600 ratcheted up 11% earnings year-over-year growth compared to just 5% for S&P 500 companies, according to JPMorgan Chase data. After five years of sluggish growth in corporate profits, this turnaround is expected to continue.

Small cap stocks are leading the charge in the resurgence of European equities. Compared to export-oriented conglomerates, small-cap companies are closely tied to Europe's domestic economy and are expected to benefit from the healthy outlook at home.

Small caps are also seen as more insulated than their large cap brethren from rising economic protectionism in the U.S. and Europe.

WisdomTree Europe SmallCap Dividend ETF (DFE) provides easy access to a diversified group of high-yield European equities that don't trade on a major U.S. exchange.

This $800 million fund holds a portfolio of over 350 different dividend-paying small-cap companies in 15 developed European markets. Over half of the portfolio companies are based in the U.K., Sweden, and Italy.

Dividends are paid three times a year in U.S. dollars and vary depending on distributions from the underlying portfolio holdings.