European Dividend Stocks Investors Must Consider
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Most American investors are steering clear of the European continent and its debt crisis. But for value and income investors, the problems in Europe have generated some good opportunities in beaten-down, high-quality companies that have a reasonable cash and earnings position and are paying out solid dividends from that cash.
In fact, the managements at many large European firms have decided that the best way to treat their shareholders is to hand back to them more cash in the form of increased dividend payments. So far this year in Europe, only a fifth of dividend-paying companies have cut their dividend while half of them raised their dividend payment.
Historically, many major European firms have had a payout ratio (the proportion of earnings paid out in dividends) of roughly 40 percent. But now many companies are raising level to more like 50 percent. One such example is French pharmaceutical company Sanofi (NYSE: SNY). Last September, its CEO Chris Viehbacher said he believed his company could progressively raise the dividend payout ratio up to 50 percent. Sanofi's current dividend yield is roughly 5 percent.
For some European companies increased dividend payouts is really not new. Well known names including Danone, Roche, Unilever NV (NYSE: UN) and Novartis AG (NYSE: NVS) have a long history of consecutive dividend increases. Take Novartis and Unilever as examples. The Swiss pharmaceutical giant Novartis is currently yielding about 4.8 percent and the company has had a continuously rising dividend since 1996. Meanwhile Unilever, the food and consumer goods giant, has a yield currently of 4.1 percent and has had a continuously rising dividend for over 25 consecutive years.
One note here to investors when looking at dividend histories. Remember to take into account currency movements when looking at dividends. It is possible a European firm raised their dividend but a strong US dollar offset that raise and vice versa.
On the other hand, for some other European firms a steady and rising dividend policy is rather new. The German industrial conglomerate Siemens (NYSE: SI), which has been around since 1847, did not define a clear dividend policy until November 2010. It did so for one purpose, as stated by its CEO Peter Loscher. He said the policy was put in place to provide long-term investors with an additional incentive to invest in Siemens. Its yield is currently 3.5 percent.
For investors who do not want to purchase individual European stocks, there is an alternative – exchange traded funds. One top quality pick there is the Vanguard MSCI Europe (NYSEMKT: VGK). It is a current yield of 4.3% which compares very favorably to the 1.9 percent investors will receive from the SPDR S&P 500 ETF. Its portfolio, with an overall price/earnings ratio of about 10, consists of many of the top European firms including Nestle, Vodaphone and Royal Dutch Shell.
One note to investors new to European and other foreign stocks. Unlike in the United States where quarterly dividend payments are the norm, in Europe dividends are traditionally paid twice a year. Although some European firms like Unilever have adopted the American policy of paying on a quarterly basis. So do your research.
The bottom line for investors looking for value and income is that the European crisis has created opportunities (cheap prices and high yields) in many European blue chips. If you can stand some short-term volatility, it's time to start shopping.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.