Four European Dividend Stocks for Contrarian Investors
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The markets seemed to be gaining some relief over the outcome of Greek elections during the weekend, but it’s still too early to see any sign of a sustainable stabilization there. Everybody knows how shaky the European situation can be, and these kind of announcements has produced short lived market rallies in the past. There is no way of knowing for certain if the worst is over in Europe or not, so investors should keep in mind that the situation could turn for the worse from one minute to another.
The European crisis is going to be long and complicated, but that doesn't mean that investors need to forecast the future of the Euro or even understand every little bit of information coming from the old continent. The problems in Europe could certainly keep producing negative noise in the markets for a long time. But over the long term, those who buy solid companies at attractive valuations should do quite well, even if we see further volatility.
Big dividend paying European stocks are trading at very interesting valuations, and most of them are widely diversified and adequately financed. There are alternatives with different levels of risk, and investors have been so negative about Europe that these companies have big upside potential in case the Eurozone stops being such a headache for investors.
One of the safest, low risk alternatives to buy on pullbacks could be Unilever (NYSE: UL) -- the third largest packaged food company in the world is not going to get into much financial trouble regardless of economic conditions. Unilever sells everyday necessities all over the planet, with more than 50% of sales coming from emerging markets. The business is financially solid and operationally diversified.
It may take some time, but those who are willing to patiently increase positions in a company like Unilever over the long term are likely to achieve strong results -- especially those opportunistic enough to capitalize on the moments of high volatility in order to increase positions at discounted prices. And dividends are attractive too; a 3.9% dividend yield is an important plus in times of ultra-low interest rates.
Pharmaceutical companies can be a bit more uncertain. The sector is facing important patent expirations and regulatory changes, but valuations in some big European laboratories look very attractive. Sanofi (NYSE: SNY) for example yields a 4.8% in dividends and looks like a solid bet.
Sanofi is facing various patent expirations over the coming years, but it also has a deep pipeline of late-stage products that could provide more than enough revenue to compensate for those lost patents. The acquisition of Genzyme last year should also provide extra material to launch new products into the markets.
One very attractive dividend payer among European stocks is France-based Total (NYSE: TOT), an integrated energy producer with a 5.9% dividend yield. The European crisis can affect Total through two mechanisms at the same time: Europe-based companies are usually sold violently when investors get into panic mode, and falling energy prices have a clear negative effect on the company's earnings.
Total has considerable exposure to Europe in its refinery business, but the company operates on a global scale and, unless we see a prolonged retreat in energy prices, Total will keep paying its juicy dividends. The company has been investing heavily in new projects, which could be problematic in case of big declines in energy prices, but at the same time those projects provide growth potential for investors.
Those looking for contrarian bets in Europe may want to take a look at Telefonica (NYSE: TEF). The Spain-based telecom stock has fallen by nearly 50% in the last year and is paying an almost 11% dividend yield. The risks are high in this case; the company is heavily leveraged, and the Telecom business is plagued with tough competition, which produces a heavy burden on profitability.
But Telefonica also has some very attractive assets in Latin America, which provide exciting long-term prospects. With operating margins above 14.5% Telefonica is more profitable and has better growth prospects than most of its European peers. The company has strong cash flows and is selling assets to reduce debt. If things go well for Telefonica, investors should achieve outstanding long-term returns, considering all the negativity that's currently surrounding both Spain and the telecom sector.
It has been proven many times in financial history, crises usually create buying opportunities for long-term investors. Companies with strong cash flows and solid business models will go through the hard times successfully, and investors in these businesses will probably be handsomely rewarded for their patience and discipline.
acardenal has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Total SA. (ADR) and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
