An intriguing ETF is WisdomTree Emerging Markets SmallCap Dividend ( DGS), which yields 3.7%. During the past three years, the ETF has returned 33.5% annually, outdoing its average peer by 7 percentage points. Jeremy Schwartz, WisdomTree's research director, says that dividend stocks can be a particularly appealing way to play small-cap emerging markets stocks. Because many of them are young and have weak governance structures, the small stocks can be volatile, he says. But dividend payers tend to be steadier. "If a company can pay a dividend, you can have more confidence that the cash flows will be reliable," Schwartz says. For a mutual fund that offers a limited stake in foreign dividend payers, consider RNC Genter Dividend Income ( GDIIX). While it focuses on U.S. names, the fund holds 10% of assets in foreign stocks. During the last three years, RNC Genter has returned 22.2% annually, outdoing 62% of large value peers. Chief investment officer Dan Genter prefers stocks that are increasing their dividends at least 8% annually. He is wary of companies that have cut their dividends in the past five years. A favorite holding is Total ( TOT), a big French integrated oil company that yields 4.5%. Genter says that Total will expand production steadily over the next five years. That will boost profits and enable the company to flourish in a variety of market conditions. "Total will make money, even if the price of oil drops to the low 80s," he says. Genter also likes Novartis ( NVS), a Swiss pharmaceutical giant. He says that the company should increase profits as it expands into the emerging markets.
Chinese stocks fared poorly last year, but engine-maker China Yuchai bucked the trend as the country continues to utilize more trucks to transport domestically made goods, says David Ruff, portfolio manager for the Forward International Dividend Fund.