The European Crisis has created a number of uncertainties in the world economy. European stocks, not surprisingly, have been hit especially hard. At a time when investors are running away from anything Europe related, it is important to keep things in perspective and identify stocks that are being unfairly punished. Here are three European stocks that pay you rich yield to wait out the crisis. Additionally, their high dividend yields will make them attractive buys once the fear subsides.
France Telecom (FTE) – France Telecom provides fixed telecom, mobile phone, data transmission and other media services to markets across Europe. Its revenue in the latest quarter has suffered due to the deteriorating economic condition and customers holding back purchases to wait for the latest iPhone. Despite slowing sales, France Telecom is still generating over $8 to $9 billion a year of free cash-flow, and only 65% of it is being paid out as dividend. The low free cash-flow to dividend payout ratio serves as a buffer for future uncertainty. At a 12.7% yield, the stock easily pays one of the highest dividends on the Street. Such yield won’t last long once things stabilize as investors will pour into the stock to chase the high yield.
British Tobacco (BTI) – You might not agree with the products it sells, but the company generates serious free cash flows. Like Altria (MO), British Tobacco pays an eye-popping yield of 4.5%. The business is one of the least capital-intensive businesses around. Only 10% of its operating cash flows is needed on capital expenditure to maintain the business. Almost all of its free cash flows are used to pay dividends, buy back shares or reduce debt, all shareholder friendly moves.
Telefonica (TEF) – Telefonica is a Spanish telecom provider. It operates in both Europe and Latin America. Operating in different markets allows it to diversity its revenue sources. The strategy is clearly working as it reported a 5% increase in revenue in the latest quarter. Its Latin divisions have historically reported much higher growth than its European counterparts. At a 12% dividend, the yield is as high as the yield on France Telecom. The management has a history of raising dividends as soon as the free cash flow situation allows. The company has plans to raise dividend again next year.
I’m not sure if the euro will survive or how bad the coming European recession will be, but as in any economics times, not all companies will suffer equally. It is important to identify companies that will still create value even in a harsh economic environment. As with all things, this economic crisis will end and when it does, these high dividend stocks will be rewarded handsomely.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.