Dividend investing is among the investing themes that are on a tear this year amid piles of uncertainty. Wall Street saw the worst start ever to a year in 2016 and recovered modestly thereafter. But it is yet to regain its mojo fully though key U.S. indices hit several highs at the start of Q3.

Overall, China-led global market crisis, upheaval in oil prices, uneven growth momentum in the U.S., the Brexit, and deflationary fears in Japan and the Euro zone have kept high risk securities on the edge this year, except some occasional relief rallies. For obvious reasons, a drive to safety boosted demand for U.S. treasuries this year, bringing down the benchmark 10-year U.S. Treasury bond yields to record lows in July.

Though the U.S. economy offered positive cues recently with some upbeat data points and stoked speculation of a rate hike in the upcoming September FOMC meeting, lackluster job, ISM manufacturing and service sector data for the month of August poured cold water on the rate hike talks. With this, the benchmark 10-year U.S. Treasury yield slipped to 1.54% on September 7, 2016 from 2.24% at the beginning of the year.

Hunt for Dividend Yield, But Dividend ETFs Overvalued?

No wonder, such a low dividend yield would spur investors to rush to dividend destinations. But after an astounding year-to-date rally, most of the dividend ETFs appear overvalued now. If this was not enough, Fed chief Janet Yellen indicated a few months ago that U.S. stocks are pricey.

The Fed noted then that “forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.” And Yellen also indicated that a prolonged low-rate environment has inflated asset prices.

Not only the Fed, many analysts lately expressed overvaluation fears. Lukewarm U.S. economic growth, still-subdued corporate earnings, global growth issues, no promise of any sustained revival in the oil patch, and the upcoming presidential election in the U.S. definitely raise apprehension over the longevity of the market ascent.

Low P/E Dividend ETFs to Play?

Against this backdrop, only dividend can safeguard one’s portfolio in bear market movements and ensure steady income in a low yield backdrop. Beyond the border, the wave of easy money polices, be it in Europe or Asia, has also brightened the appeal for dividend investing. But it will be intriguing to play undervalued dividend ETFs, which have low P/E ratios, for future trading.

The perception is that the lower the P/E, the higher is the value of the fund. This conclusion is drawn on the simple logic that a security’s current market price does not justify its underlying potential and therefore leaves room for upside.

ETFs in Focus  

Below we highlight five dividend ETFs that have P/E less than SPDR S&P 500 ETF (SPY - ETF report) (which is 16.23 times).

SPDR S&P 500 High Dividend ETF (SPYD - ETF report) : P/E – 15.4x; Yield – 2.70%

The fund looks to track the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield.

WisdomTree Emerging Markets High Dividend ETF (DEM - ETF report) : P/E – 10.5x; Yield – 4.10%

With the odds of a September Fed rate hike looking bleak following the latest downbeat U.S. economic data, emerging market ETFs are likely to gain. Chances of a few more months of cheap dollar inflows should benefit the fund. Moreover, even if the fund ends up seeing capital losses, a 4.1% yield would make up for that losses to a large extent.

WisdomTree International Small Cap Dividend ETF (DLS - ETF report) : P/E – 12.6x; Yield – 2.94%

Several developed economies and a few emerging countries are opting for monetary easing currently to boost their economies. And since small caps better reflect domestic economies, DLS can be an intriguing pick.

PowerShares International Dividend Achievers ETF (PID - ETF report) : P/E – 13.8x; Yield – 3.75%

This international fund gives exposure to stocks with successive years of dividend growth. Canada (29.8%) and U.K. (23.3%) are top countries of the fund.

WisdomTree Asia Pacific ex-Japan Fund (AXJL - ETF report) : P/E – 12.6x; Yield – 3.13%

The fund looks to track the performance of dividend paying companies in the Asia Pacific ex-Japan region.