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Reaching behind the Iron Curtain for yield

If ECB rolls out QE, who will benefit?

Perniciously low interest rates are driving investors into ever further corners in the search for yield, but it isn't clear if that should include the beaten down markets behind what used to be the Iron Curtain.

"One market that looks certainly very cheap, even cheaper than in 2008, is Russia, the biggest market [in Eastern Europe,] " Tim Umberger, a senior advisor at East Capital, told CNBC. "We can find companies in the consumer sector that have a very high growth of between 20-30 percent and they're trading at more than 5 percent dividend yield and in some cases even double-digit dividend yields."

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Among other former Soviet satellites, Umberger noted some Romanian utilities offer around 10 percent yields amid gas and electricity price liberalization and some Balkan markets remain around 60-80 percent off their peaks.

But while the yields may appear juicy, it isn't clear how the risks will play out. "It's a high risk part of the world," said Richard Jerram, chief economist at the Bank of Singapore. "You've got to ask why the dividend yields are high."

Andrey Rudakov | Bloomberg | Getty Images

Russia's economy has slowed dramatically since tensions with the European Union and U.S. flared up this year, with third-quarter gross domestic product (GDP) growing just 0.7 percent on-year and economists forecasting just 0.3 percent growth for 2014, according to a Reuters poll. The country has been battling the pain of sanctions from the West since March, when it annexed the Crimean peninsula from Ukraine.

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Even Umberger cited concerns over the Eastern Europe's growth outlook amid Russia-Ukraine tensions. While Ukraine isn't a key trading partner for most of the region, Russia is, Umberger noted.

"There are quite a lot of businesses that are established in Russia and a slowdown in Russia has a certain impact on these economies," he said.

Jerram also noted inherent problems with using dividend yields as a substitute for bonds. "There's something of a concern at the moment that when the U.S. starts to raise interest rates, then the attraction of dividend yields will diminish," Jerram said.

In addition, flows out of the ruble can eat into expected dividend yields when the funds are converted into other currencies, especially as the greenback is flexing its muscles against a variety of currencies. The ruble has been among one of the worst-performing currencies so far this year, shedding nearly 40 percent of its value against the U.S. dollar.

Read More Russia losing 'up to $140B' from sanctions, oil drop

Some don't expect funds will head back toward Russian assets anytime soon, especially with many locals "de-rubalizing."

"People are investing their money into what I would call real assets ," Torsten Müller-Ötvös, CEO of Rolls Royce Motor Cars, told CNBC, adding his company's business in Russia has been good as the luxury cars are seen as a "very proper" investment.

Funds certainly don't seem to be flowing to Russia's stocks. Around $1.2 billion has flowed out of Russia-focused mutual funds and exchange-traded funds so far this year, according to data from Jefferies.

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"Inflows would not come fast and easy, as investment appeal is being hurt by the ongoing tensions [with Ukraine]," Societe Generale said in a note this week. "The temporary poor growth prospects have diverted capital reinvestment into other regions. This could imply tighter conditions for longer-term growth, to the extent that the potential for investing is unlikely to be restored without credible a solution to the ongoing crisis."

In addition, while select stocks in Eastern Europe's markets may offer bargains, overall markets may not be horribly cheap.

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Russia's market is trading at 5.3 times 12-month forward earnings, but that's only slightly below the five-year average of 5.4 times, although the dividend yield is at 4.4 percent, above its five-year average of 2.9 percent, according to recent data from Credit Suisse. Poland is trading at 13.4 times forward earnings, above the average of 11.7 times, while the Czech Republic's market is at 13.7 times, above the historical average of 10.9 times, the data show.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter