Sunday, 17 June 2012

Europe's Best Dividend Stocks

With Europe in turmoil we will look to see if there are any good investment opportunities in European stocks at the moment. After scouring the main bourses of Europe (French CAC, German DAX, Spanish IBEX, Dutch AEX and the Italian MIB) I have come up with 5 stocks that look decent opportunities right now. I have excluded a lot of super yielding stocks such as France Telecom, Telefonica, TNT and Peugeot on the grounds that they are "falling knives". The below chart for Peugeot illustrates this beautifully:

As you can see the last 12 months have been pretty bleak, dropping from the high 20s to less than 8. The current dividend of almost 13% isn't going to stay. Even the ever optimistic analysts forecast a massive cut in the dividend.

Using the standard valuation model (5.5% long term dividend adjustment, 40% analyst growth rate, 3 year average dividend, etc) we will look at 5 stocks that are currently uptrending and paying decent dividends with positive expected dividend growth.

France (CAC40)

It has to be said most the stocks in the CAC40 are fairly cack at the moment. A lot of mega yields (over 10%) but weak price action and negative forecasts. Two stocks managed to great through our filtering process though. Sanofi, the pharmaceutical giant, and Unibail-Rodamco, the Dutch-French commercial property company.


Sanofi is an international pharmaceutical company doing most of it's business in the USA and Europe. It's dividend has been rising over the last 3 years from EUR2.40 to EUR2.65. Forecasts for 2 years time are at EUR2.96 giving a 5.67% annual growth rate. The current dividend is a decent 4.8% (3 year average = 4.52%). Price action is strong given the recent price falls across Europe:

Total Expected Return = 3 year Dividend Yield + Adjustment Rate + 40% Analyst Growth Rate
= 4.52% + (-0.98%) + (0.40*5.67%) = 5.81%


Unibail is a commercial property company. It's dividend yield is currently 5.8% having been a steady EUR8 for the last 3 years. Forecasts estimate a dividend of EUR8.58 in 2 years time giving a modest growth rate of 3.56% annually.

The price chart is reasonably positive having broken it's 100 day high in February and again in March. Certainly no alarm bells ringing as far as price action goes.

Total Expected Return = 5.79% + 0.00% + ( 0.40 * 3.56%) = 7.21%

Germany (DAX30)

What does Europe's major bourse have to offer us? Deutsche Post, logistics and a bit of retail banking and Muech Rueckvers (not sure I want to invest in something I can't even pronounce), an insurance company.

Deutsche Post

Deutsche Post, a fairly easy business to understand, is it in a dying industry? I'm not sure. Certainly letters and bills are being replaced by email but there is growing online shopping so maybe the business can continue to remain viable.

Looking at the figures the dividend is 5.3% currently and has been rising year on year from 60c to 65c to 70c (giving a 3 year average dividend yield of 4.91%) and forecasts are around 79c for 2 years time giving a solid 6.23% annual growth. 

Quite an impressive chart for a fairly boring business.

Total Expected Return = 4.91% + (-0.57%) + (0.40 * 6.23%) = 6.83%

Muench Rueckvers

An insurance company. I'm never confident of buying these but the figures look good. Current yield 6.1% and dividend has risen from EUR5.50 to EUR6.25 in the last 3 years (giving an average dividend yield of 5.67%). Forecasts going forward 2 years are at EUR6.66, giving an annual growth of only 2.14%.

Pretty good price action in the current climate and especially for an insurance company. The price has fallen a fair bit recently but remains above the 100 day low line.

Total Expected Return = 5.67% + 0.00% + (0.40 * 2.14%) = 6.53%

Italy (FTSE MIB)


For Italy we only have one stock: ENI, the oil and gas giant. With a market cap of EUR58bln and operations in 70 countries this company is diversified pretty well from Italy's troubles. The current dividend yield is a generous 6.4% (6.28% 3 year average). The pay out has been stable over the last 3 years and forecasts going forward have a modest 3.23% annual growth.

Price action looks OK, it's recently fallen but stayed above the 100 day low. 

Total Expected Return = 6.28% + 0.00% + (0.40 * 3.23%) = 7.57%


The table below summarises the 5 stocks above:

3yr Yield
Total Return
Deutsche Post
Muench Rueckvers

The total returns look modest, especially given the low growth rates we have used in the model.

With the majority of individual stocks in Europe currently downtrending a lot of stocks have been over looked. Once prices turn and begin their uptrends much more opportunities will arise, many of which will have expected returns greater than the above. Watching and waiting might be the optimal strategy for now as uncertainty in Europe could continue to put downward pressure on European markets. Many bargains may be had in the coming months, I'll keep you posted.


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