A Hefty Dividend Boosts Australia ETF

The performance of iShares MSCI Australia (EWA Quote - Cramer on EWA - Stock Picks) over the past five years has been nothing short of astounding.

This exchange-traded fund has gained more than 180% since the start of 2001, compared with just a 20% gain for the S&P 500 ETF Spyders(SPY Quote - Cramer on SPY - Stock Picks).

Sam Patel, TheStreet.com Rating's manager of mutual fund research, recommended this A-plus-rated fund in recent article as an ideal way to gain exposure to Australia's thriving economy and consolidation in the media industry in particular.

But there's one thing he failed to mention that could make iShares MSCI Australia an even more compelling investment: the country's exceptionally high dividends.

The average dividend yield of the stocks in the fund is 4.1% -- more than twice the 1.9% average yield of the S&P 500 and higher than even the average for the iShares Dow Jones Select Dividend Fund(DVY Quote - Cramer on DVY - Stock Picks), which was built for yield-seekers.

Yields are high in Australia not because Australian stocks are cheap per se --although as we'll see later they still sell at a slight P/E-discount to the S&P 500 -- but because the Australian companies in iShares MSCI Australia, on average, pay out a whopping 62% of earnings in the form of dividends, more than twice the rate of companies in the S&P 500.

Although it may seem odd to us now in our P/E-driven market, the payout ratio of the S&P 500 was north of 50% for decades following World War II, and spiked to 60% as recently as 1991.