Franklin FTSE China ETF's Dividend Play: A Gamble on China's Economic Comeback?

As the Franklin FTSE China ETF (FLCH) prepares for its next semi-annual dividend distribution—expected in June 2025—investors are weighing whether this income stream is worth the risk amid China's uneven economic recovery. Let's dissect the numbers and the risks to determine if this ETF is a buy, hold, or sell.

Dividend Dynamics: A Volatile Dance

The FLCH's most recent dividend of $0.41 per share in December 2024 marked a 246% surge from its June 2024 payout of $0.119. While this volatility might unsettle income seekers, the ETF's dividend growth over longer horizons is more stable: a 4.27% annualized rise over three years and 10.53% over five years. However, the TTM yield of 1.93% remains muted compared to its historical highs, and the upcoming June 2025 dividend is projected to drop to $0.1921, a 53% decline from the December payout.

The Takeaway: FLCH's dividend is a rollercoaster ride, not a steady paycheck. Investors must be prepared for swings driven by China's economic cycles and geopolitical tensions.

China's Economic Crossroads: Growth vs. Headwinds

The Q1 2025 GDP of 5.4%—fueled by export booms and industrial production—paints a rosy picture. Exports jumped 6.9% year-on-year, while manufacturing and tech sectors thrived. Retail sales, boosted by government “old-for-new” incentives, grew 7.7% in March.

But cracks lurk beneath the surface. The property market remains a disaster: real estate investment fell 9.9%, and deflationary pressures are eroding consumer spending power. Meanwhile, U.S. tariffs loom, with exports to America now just 14% of total trade—but still a vulnerability.

The Takeaway: China's economy is growing, but it's far from a smooth recovery. FLCH's performance hinges on whether sectors like tech and consumer discretionary can outpace headwinds like real estate and deflation.

Valuation: A Bargain or a Mirage?

FLCH's expense ratio of 0.19% is a steal compared to many China-focused ETFs. Its TTM yield of 1.93% edges above the bottom 25% of U.S. dividend payers, but it's no income powerhouse. The ETF tracks the FTSE China RIC Index, which leans heavily into consumer discretionary (27.77%), communication services (20.37%), and tech—sectors primed for growth if China's stimulus measures succeed.

However, its valuation isn't a steal by global standards. While it's cheaper than U.S. peers, FLCH's P/E ratio of 12.8x (as of June 2025) sits near its five-year average. The equity risk premium—the dividend yield vs. bond yields—is favorable, but it's not a screaming buy.

The Takeaway: FLCH isn't a screaming bargain, but its low fees and exposure to growth sectors make it a solid core holding—if you're willing to stomach volatility.

Risks to Watch

1. The June 2025 Dividend: If the projected $0.1921 payout materializes, it will mark the third straight year of June distributions underperforming December's. This could spook income investors.
2. U.S.-China Trade Tensions: Tariffs could crimp exports, and FLCH's heavy China exposure (98.36% of holdings) leaves it vulnerable.
3. Deflation and Debt: Falling prices and local government debt could sap consumer and corporate confidence.

Investment Advice: Proceed with Caution

• Buy: If you're a long-term investor betting on China's tech and consumer sectors outpacing its economic struggles. DCA (dollar-cost averaging) reduces the risk of timing the next dividend drop.
• Hold: If you're already in, but keep an eye on the June payout and China's Q2 GDP data (due in July).
• Sell: If you need steady income or can't stomach volatility.

Final Word: FLCH is a bet on China's resilience, not a sure thing. Pair it with hedges like gold or U.S. Treasuries, and don't let the dividend swings rattle you—unless you're a yield-chaser. This ETF is for investors with a high-risk tolerance and a long-term view on Asia's economic giant.