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Kenneth Chang

European Dividend Stocks

2012 Mar 22

 

Before getting to the exact stocks, at first, please let me explain why I have chosen European dividend stocks as a topic. For the beginning, lets solve the question why dividend stocks. The true is that many investment managers are still arguing whether to invest in stocks at all and those who were saying that stocks are too risky and there will be opportunities to buy them cheaper are changing their minds as time goes. And the true is that most of stocks are undervalued now in long term view. In the previous article I already mentioned that bonds may be even riskier than stocks over long term and when it comes along with unpredictability of government bonds, I think, the best choice for long term investing might be the stocks. 

 

But as anyone could expect, nearest future still can bring unfavorable surprises for the investors and investor should be very careful with high volatility investments. Dividends stocks are less volatile and often are described as defensive stocks, and such stocks sustain the value better during financial turmoil, of course, expected return is also more limited.

 

Then comes the next question: why European stocks? At first, as I mentioned before, I want to choose safer class of stocks and emerging market do not fit for that. So we have to choose from developed markets which are USA, EU and Japan. Japan doesn’t look too much attractive because of overvalued currency and long term economical stagnation. The situation of US at first sign looks much better than situation of EU, but I think EU will stand better over long period than US. Current increase in US economical indicators was provoked by aggressive stimulus which was paid by loaned money. Europe could do the same at any time. Despite few problematic countries in Europe, total EU budget balance and public debt is in better situation that of US and this is a long term advantage. But another long term criterion which I think can be the most important is trade deficit of US: it is huge. While Europe’s situation at this point is very well balanced, at this might be the main advantage over long term. 

 

Because of the mentioned reasons I see European dividend stocks as attractive investments. After screening European stock markets, I have selected few stocks that may look interesting at few points: 

 

  • These stocks are from defensive sectors: telecoms and utilities.
  • These stocks can pay large dividend yield (if not this year, then later).

 

Company

Stock

Price, EUR

Country Sector P/CF P/E

EV/

EBITDA

Beta 

Dividend

Yield, %

Koninklijke KPN 8.5 Netherlands Telecoms 2.8 8.6 4.7 0.19 10.5
Vivendi 13.9 France Telecoms 2.8 6.5 4.0 0.81 8.5
France Telecom 11.5 France Telecoms 2.9 8.4 4.2 0.42 11.9
Deutsche Telekom 9.0 Germany Telecoms 3.2 13.6 4.5 0.40 8.0
Telecom Italia 0.9 Italy Telecoms 2.3 7.1 4.4 0.52 6.7
Hellenic Telecomm. Organization (OTE) 3.0 Greece Telecoms 1.0 5.4 N.A. 0.68 N.A.
Portugal Telecom SGPS 4.0 Portugal Telecoms 1.7 7.6 N.A.* 0.63 16.2*
Enel SpA 2.8 Italy Utilities 2.7 7.6 5.9 0.81 9.2
RWE AG 36.0 Germany Utilities 3.3 8.8 5.5 0.77 10.5

 

Source of data used in the table: EV/EBITDA ratio and P/E ratio are from Bloomberg. EV/EBITDA is TTM (trailing for last four quarters), while P/E is estimate for 2012 except for Portugal Telecom which is an estimate for 2011 of price to earnings ratio. P/CF ratio, Beta and Dividend yield is used from Reuters website for each company. 


* EV/EBITDA for Portugal Telecom is excluded while this one is not very informative because of the large acquisition recently (stake in Brazilian telecom) and the dividend yield is adjusted according to company’s plans for dividend payout because neither Bloomberg’s, neither Reuter’s numbers does not look very reasonable. 

 

As you can see some stocks in this table are from troubled countries as Portugal or Greece and of course such investments will be riskier than Deutsche Telecom but it is obvious that these are cheaper and can provide better result in good-case scenario, so it for you to decide. You should not forget that even low ‘beta’ does not guarantees low risk if the home market is very volatile. 

 

However, such portfolio as a whole would look quite safe long-term investment in my eyes compared to the global stock market and could provide nice return in dividends that could be about 10% annually which is not bad at all. 

 

If you think that such portfolio provides not enough of diversification, you also can include some ETFs that invest in high dividend stocks in Europe:

 

 

 


Disclaimer

In this article I provided the facts about some interesting stocks; but in neither way these facts or my opinion can be treated as an investment recommendation. You should make your own analysis of the stock and decide whether it is worth investing or not. 

An author of the article might have been invested in stocks/assets that are mentioned on the article directly or indirectly. 

 

By Rokas Lukosius

 

Read next article: Baltic Investments

 

 





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