In this article, we will discuss the 10 best European dividend stocks to buy now. If you want to see more stocks, you can also take a look at the 5 Best European Dividend Stocks to Buy Now.
In late April, Guillaume Jaisson, a strategist at Goldman Sachs, highlighted that there is a significant difference between the average yield of the bonds and the dividend yield offered by some of the best European stocks in the market. In his research note, the analyst cited that there is “a case for selective high-yield strategies” as stocks offering high dividend yields are expected to outperform the broader market in the near future. This is because these high dividend-yielding stocks are less sensitive to rising bond yields. Furthermore, in an environment where inflation is hovering around a four-decade high, investors would opt for “real” cash flows in the short term as opposed to uncertain capital appreciation in the form of rising stock prices. In addition, dividends act as a stable form of income in times of economic uncertainty. The rate of the 10-year Eurozone bond yield and the 10-year US Treasury bond yield is currently hovering around 3% and 3.8%, respectively.
It must be noted that high dividend-yielding European stocks have underperformed against the broader market in the last decade and a half. This was because the low bond yields gave a boost to the outlook on the longer-duration stocks, especially in the technology sector. Meanwhile, stocks offering high-dividend yields were considered a value trap by investors. Mr. Jaisson believes that the best European stocks in these circumstances are the ones that have a cyclical nature of business. The banking and energy sectors are considered highly cyclical and the biggest contributors to the 10% YoY increase in dividends in the benchmark Stoxx Europe 600 Index in 2022. Meanwhile, the US benchmark S&P 500 Index is anticipated to see a dividend growth of 7% during this year. Experts believe that the European Central Bank will not be as aggressive as the US Federal Reserve in increasing the benchmark interest rates, allowing European stocks to protect their margins. Some of the best-performing European stocks in recent times include ASML Holding N.V. (NASDAQ:ASML), Shell plc (NYSE:SHEL), and Novo Nordisk A/S (NYSE:NVO).
Image by Steve Buissinne from Pixabay
Our Methodology
We have included companies that have a forward dividend yield of more than 4% as of October 6. This is higher than the 10-year US Treasury bond yield and the 10-year Eurozone bond yield. Furthermore, most stocks on this list belong to the Dividend Aristocrat List, which comprises companies that have been paying out dividends for the past 25 consecutive years at least. These companies selected as the best European dividend stocks are expected to generate healthy free cash flows (FCF) and are not highly leveraged. This is because high financing costs could have a material impact on dividends.
10 Best European Dividend Stocks to Buy Now
10. Sanofi (NASDAQ:SNY)
Forward Dividend Yield: 4.59%
Number of Hedge Fund Holders: 28
Sanofi (NASDAQ:SNY) is a Paris, France-based healthcare and pharma company. Sanofi (NASDAQ:SNY) has a presence in over 100 countries and employs nearly 100,000 people across its 70 manufacturing locations and 20 R&D sites.
Sanofi (NASDAQ:SNY) is a Dividend Aristocrat stock as it has been increasing its dividend for the past 27 consecutive years. The stock offers an annual payout of $1.75 per share as of October 6.
In a note issued to investors on September 15, Dominic Lunn at Credit Suisse gave Sanofi (NASDAQ:SNY) stock listed on the Paris Stock Exchange a target price of EUR 106 and maintained an Outperform rating. This target price would translate into $52.08 as the company’s American Depository Receipts (ADRs) listed on the New York Stock Exchange (NYSE) are equivalent to two ordinary shares. One of the leading drugs in Sanofi’s (NASDAQ:SNY) pipeline is the immunology drug Dupixent. The drug has received approval from the US FDA for the treatment of chronic type 2 inflammatory skin conditions. Overall, analysts are bullish on Sanofi’s (NASDAQ:SNY) long-term growth prospects, as the company has 87 drugs in the pipeline.
As of Q2 2022, Sanofi (NASDAQ:SNY) has observed a YoY increase in sales of 43%. Analysts think Sanofi (NASDAQ:SNY) is trading at a 25% discount to its competitors in terms of the PE ratio. The company’s expected PE ratio for 2023 stands at 12x, while the price-to-book (P/B) ratio is valued at 1.7x.
9. Unilever PLC (NYSE:UL)
Forward Dividend Yield: 4.28%
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) is a London, UK-based FMCG company. It is a Dividend Aristocrat stock with leading brands like Dove and Lipton in its portfolio.
Unilever PLC (NYSE:UL) has an annual payout of $1.87 per share, translating into a forward dividend yield of 4.28% as of October 6. In a research note issued on September 29, Tom Sykes at Deutsche Bank highlighted that the consumer staples sector could be one of the last hiding places for investors during these inflationary times. In the staples sector, Sykes picked Unilever PLC (NYSE:UL) as one of his top picks. The analyst thinks that a fall in commodity prices will enable Unilever PLC (NYSE:UL) to invest more in research and development (R&D) and advertising and promotional (A&P) spending. Sykes thinks that Unilever PLC’s (NYSE:UL) strong fundamentals can help the company withstand a potential economic downturn across Europe, which makes it one of the best European stocks to invest in.
Polen Capital shared its bullish stance on Unilever PLC (NYSE:UL) in its Q2 2022 investor letter. Here’s what the firm said:
“Multinational consumer goods company Unilever PLC (NYSE:UL) showed robust price increases overall, with minimal impact on volume, resulting in faster-than-expected sales growth during the quarter. Indeed, higher inflation can be a positive change for companies with favorable brands like Unilever as these conditions make it easier for the biggest brands to raise prices, continue spending on advertising, and take share. We believe the appointment of an activist investor to Unilever’s board in June will help spur additional growth.”
Unilever PLC (NYSE:UL) was held by 21 hedge funds as of Q2 2022.
8. Fresenius Medical Care AG & Co. KGaA (NYSE:FMS)
Forward Dividend Yield: 5.05%
Number of Hedge Fund Holders: 8
Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is a Bad Homburg, Germany-based healthcare group that is a leading provider of products and services for patients suffering from renal diseases. Globally, around 3.8 million people receive dialysis treatment regularly.
On September 8, Tom Jones at Berenberg gave Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) stock listed on the Frankfurt Stock Exchange a target price of EUR 57.95 along with a Buy rating. Two shares of ADRs listed on the NYSE are equivalent to one ordinary share of Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and this would mean that the stock has been assigned a target price of $28.38. The target price reflects an upside of 32% from the closing price as of October 6. Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) stock is the only German constituent on our list that also has the distinction of being a dividend aristocrat.
Through its 4,100 clinics, the company currently caters to 345,000 patients for dialysis treatment. The number of patients can be expected to grow significantly due to a rising aging population worldwide to 2.1 billion by 2050 from 1.1 billion in 2020. Experts think Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is well-positioned to benefit from the surge in demand for its services.
Here’s what Artisan Partners said about Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) in its Q3 2021 investor letter:
“Fresenius Medical Care is the world’s largest provider of kidney dialysis products and services. The company dominates the sale of equipment used in kidney dialysis and runs an effective duopoly in the provision of dialysis services in the US. COVID has had a significant negative impact on the company’s business in the form of both higher patient mortality and increased costs. And the company has made some capital allocation and operating errors that have reduced profits in what should be a growing, utility-like earnings stream. The share price fell 13% during the quarter. We are communicating with management and the board on resolving some of the company’s issues. Also, the new chairman of the company’s ultimate holding company is demanding better performance. As the demand for treatment of kidney failure remains a growing market around the globe, the company’s patient base will naturally be restored, and the equipment business will continue growing. Better execution should lead to better financial performance over the next few years.”
7. British American Tobacco p.l.c. (NYSE:BTI)
Forward Dividend Yield: 8.34%
Number of Hedge Fund Holders: 17
British American Tobacco p.l.c. (NYSE:BTI) is a London, UK-based manufacturer and seller of cigarettes and other nicotine and tobacco-based products. The company was founded in 1902 and currently employs 52,000 people.
British American Tobacco p.l.c. (NYSE:BTI) asserts to have over 150 million customer interactions daily and distributes its products through 11 million locations across 175 countries. On August 30, Gaurav Jain at Barclays gave the British American Tobacco p.l.c. (NYSE:BTI) stock a target price of 4,500 GBP with an Overweight rating.
British American Tobacco p.l.c. (NYSE:BTI) is making an aggressive transition towards alternative tobacco product categories that are observing a double-digit annual growth in revenue. The company is marketing oral nicotine pouches under the brand name Velo. The product is experiencing fast adoption and volume growth. British American Tobacco p.l.c. (NYSE:BTI) has a healthy forward dividend yield of 8.34% as of October 6, translating into an annual payout of $2.96 per share.
Distillate Capital Partners LLC shared its outlook on British American Tobacco p.l.c. (NYSE:BTI) in its Q1 2022 investor letter. Here’s what the firm said:
“Distillate Capital’s International FSV Strategy is less expensive, more fundamentally stable, and less levered than the benchmark All Country World Ex U.S. (ACWI-EX US) Index. The largest new position is British American Tobacco (NYSE:BTI), which was not owned previously due to leverage, but now passes that threshold and offers an 11% free cash flow to market cap yield.”
6. TotalEnergies SE (NYSE:TTE)
Forward Dividend Yield: 5.92%
Number of Hedge Fund Holders: 20
TotalEnergies SE (NYSE:TTE) is a Courbevoie, France-based integrated energy giant.
The company is focusing on increasing its liquefied natural gas (LPG) output as it is preparing for a future without crude oil and natural gas supplies from Russia. TotalEnergies SE (NYSE:TTE) has not yet ceased its operations in Russia, unlike other energy giants like BP p.l.c. (NYSE:BP) and Shell plc (NYSE:SHEL). However, during an investor presentation on September 28, TotalEnergies SE (NYSE:TTE) revealed its five-year business targets that did not include Russian operations.
The company is shifting its exploration and production (E&P) focus more towards Qatar and the US. TotalEnergies SE (NYSE:TTE) intends to expand its cash flows by $4 billion in the next five years. Furthermore, the company is working on increasing its LNG production by 40% as compared to 2021 production levels. TotalEnergies SE (NYSE:TTE) has a free cash flow yield (FCF/enterprise yield) of 19.3%. According to experts, this is 13x cheaper compared to other firms operating in the sector, providing shareholders with a decent margin of safety.
Of the 895 hedge funds in Insider Monkey’s database, TotalEnergies SE (NYSE:TTE) was held by 20 hedge funds as of Q2 2022.
In addition to TotalEnergies SE (NYSE:TTE), analysts are also considering ASML Holding N.V. (NASDAQ:ASML), Shell plc (NYSE:SHEL), and Novo Nordisk A/S (NYSE:NVO) among the leading European stocks to invest in.
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Disclose. None. 10 Best European Dividend Stocks to Buy Now is originally published on Insider Monkey.