In addition to commonly-cited valuation measures like the Price Earnings Ratio (PE Ratio) and Price-to-book ratio (PB Ratio), value-seeking investors often turn to the dividend yield as a gauge of whether a market is attractively valued. All things equal, a higher dividend yield is indicative of a more attractive market. Australia (4.5%), Thailand (3.8%) and Europe (3.8%) have some of the highest projected current-year dividend yields. However, like in the case of earnings yields (the inverse of the PE ratio), investors may want to consider comparing these dividend yields against the local bond yields in the respective markets.
The equity markets of Taiwan, Singapore and Hong Kong have some of the highest excess yields over their respective 5-year government bond rates. The Japan equity market also possesses a high excess dividend yield. Some of the markets with the lowest (negative) excess dividend yields include Indonesia, India and Brazil, markets which are characterised by their high local government bond yields. Dividend yields are just one measure of value, and investors should look at other valuation measures like PE ratios when selecting stock markets for investment.
- This can be considered one of the tools used for portfolio allocation, for dividend seeking investors looking to evaluate stock markets on a global basis. By comparing average dividend yields for a market compared to the local risk-free rate, investors may get an idea of the attractiveness of that market. However, of course, investors also need to take into account the potential impact of currency / forex movements as well.
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Investing in markets with high dividend yields
