Dividend stocks in the U.S. have been performing well, even on days when the market is dropping. Investors seem prepared to buy the dips with most dividend stocks since rates offered by certificates of
deposits, money market accounts, and others, are so minimal. However, the same cannot be said for European dividend stocks which have been absolutely crushed in the past couple of weeks. While the situation in Europe poses risks, the low stock prices also present an opportunity. It will be tough to know where the exact bottom is for stocks in Europe but with valuations this low, it could make sense for investors to start averaging into some stocks over the next year or two. Even the smart money is taking note of the values offered now. The Chief Investment Officer at Goldman Sachs sees opportunities for investors in Europe and she feels that a lot of bad news is already priced into many stocks.
The decline and volatility in some of the European stocks seems excessive in nature. After all, recessions don't last forever and people in Europe are still going to need housing, food, and communications. Furthermore, many European companies sell their products all over the world, so the impact of a weak European economy might not be as bad as some expect. The stocks below all offer a much higher dividend when compared to similar U.S. based companies. It could make sense to pick up some of these major European companies and hold the shares for a few years. Investors will be paid handsomely with dividends while waiting for a rebound in the share price. A combination of some capital appreciation, plus dividends over the next 3 to 5 years could result in major gains for contrarian investors willing to buy now. Here are some names to consider:
France Telecom (FTE) is the largest telecommunications company in France. It offers services such as Internet, mobile phones, and fixed-line communications in countries like France, Poland, Spain, etc. This stock looks like is trading more on fear and hysteria rather than reality. Selling can beget more selling even when it is not rational, and that seems to clearly be the case here when you consider that this company remains solidly profitable. It also offers what is basic services for most consumers. In a tough economy, you might go out for dinner less, but you will probably keep your mobile phone or Internet service. In fact, you might need Internet and mobile phone services more than ever to find good deals, jobs, etc. The dividend yield is now around 13%, and the stock trades for about 7 times earnings. France Telecom historically pays a dividend each year in June and August, so investors shouldn't have to wait long for a big payout. Holding this stock for a few years until the value rebounds could be very lucrative.
Here are some key points for FTE:
- Current share price: $13.33
- The 52 week range is $13.55 to $23.70
- Earnings estimates for 2012: $1.93 per share
- Earnings estimates for 2013: $1.95 per share
- Annual dividend: about $1.78 per share which yields 12.9%
Unilever PLC (UL) is one of the world's largest food companies and it is based in the United Kingdom. Most consumers have heard of or bought this company's brands which include Ben & Jerry's, Knorr, Hellmans, Wish-Bone, Amora, Ragu, Bertolli, Vaseline, Suave, Dove, and others. These brands are sold all over the world and that should limit the impact of a weak European economy. Furthermore, food is a basic need so it is one of the more defensive companies to invest in. The company could see some impact if consumers in Europe switch to less expensive generic brands, but it might offset that with growth in emerging markets. This is not the least expensive stock mentioned here, but since it is food and therefore defensive, it might be one of the least risky.
Here are some key points for UL:
- Current share price: $32.07
- The 52 week range is $29.73 to $34.55
- Earnings estimates for 2012: $2.12 per share
- Earnings estimates for 2013: $2.35 per share
- Annual dividend: about $1.19 per share which yields about 3.7%
Telefonica SA (TEF) is a leading provider of communication services in Spain but it also operates in fast-growing regions like Latin America. It offers voice, data, Internet, and other services, which are one of the last expenses many people are willing to cut. Certainly, a reduced level of economic activity will be felt by this company however, with the stock trading for about half the 52 week high and with a yield of 11%, it seems that the sell off is overdone. Even in a worst case scenario, economists only see Spain's economy contracting by a few points, so a stock decline of about 50% for a company that provides basic communication services seems ridiculous. Weak stocks can get weaker, so I would only buy a little and not go too heavy into any Spain-based stock, but this is too cheap to pass up.
Here are some key points for TEF:
- Current share price: $14.81
- The 52 week range is $14.66 to $27.31
- Earnings estimates for 2011: $1.79 per share
- Earnings estimates for 2012: $2.16 per share
- Annual dividend: $1.69 per share which yields about 11%
Siemens AG (SI) is a leader in electronics, finance, healthcare, automation, telecommunications, and engineering. This company is based in Germany which remains one of the strongest economies not just in Europe, but also the world. Siemens is a major exporter and it derives a significant portion of its revenues outside of the eurozone. This stock now trade for just about 10 times earnings and it pays solid dividend. Siemens is a top quality company and demand for its products are likely to remain strong. I would expect the possibility of some weakness in the next couple of quarters or so, but I would use that as a buying opportunity for long-term investors.
Here are some key points for SI:
- Current share price: $93.30
- The 52 week range is $84.86 to $146.74
- Earnings estimates for 2012: $8.89 per share
- Earnings estimates for 2013: $9.61 per share
- Annual dividend: about $2.85 per share which yields 3%
Novartis (NVS) develops and markets pharmaceutical products and treatments. Some investors have been concerned about key drugs going off-patent which means generic competition and lower sales. Novartis does have a blockbuster drug for hypertension, "Diovan" which will lose patent protection in the United States in September, 2012. To counter the expected decline in revenues the company is going to layoff about 2,000 employees. Since Novartis is based in Switzerland, these shares are prone to drop when European markets are falling, however, pharmaceuticals will remain in demand even in a weak economy and many investors consider this sector to be defensive in nature. The dividend yield is well above average and based on earnings, it has room to rise in the future.
Here are some key points for NVS:
- Current share price: $54.33
- The 52 week range is $51.60 to $64.82
- Earnings estimates for 2012: $5.35 per share
- Earnings estimates for 2013: $5.52 per share
- Annual dividend: about $2.48 per share which yields about 4.6%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I am long FTE.