5 great European dividends
These opportunities to get above-average dividends don’t come without risks.
By Jim Trippon, Dividend Genius
Many investors hunting for yield search the world over, and we're no exception. It just makes sense to widen your horizons, particularly in such a global low interest environment as we've had.
Now, that's not to say that you absolutely have to go outside the U.S. or North America for your dividend stocks. You can certainly find some very good yields here. But again, it doesn't hurt to look.
One of the ongoing developments in the last couple of years has been the turmoil in Europe, as the Eurozone tries to come to grips with its enormous sovereign debt problem. The value of the euro has bounded around and at times looked ready to be unhinged.
The debt crisis has, of course, driven equity prices down. Even in the strongest markets, the UK and Germany, the averages have been highly volatile and perhaps more unpredictable than usual. In the weaker members, the debt problems have wreaked havoc with the averages.
Greek stocks? The ASE, an index which follows some of the largest Greek companies, fell more than 50% in the last 12 months. The average was at 1,531 in April 2011, but plunged nearly 800 points to 645 by January. These numbers are well of the historical averages of the ASE, which run at around 2,000.
While the wreckage in the Greek economy is reflected in its stock market, and only the brave and the bold might consider hunting for value there, such isn't the case in some of the other European economies.
Often, the combination of buying stocks at an attractive price in a down market along with the dividends is an investing double play, setting investors up for both income and price appreciation, a doubly sweet way to profit, though this doesn't look like the case in a ravaged market like Greece.
But if you look north, where the European economies of the UK, Germany, and to a lesser degree, France are doing much better, there is an interesting picture of potential value developing.
There are still many companies based in Europe that are large, global, and have a diversified enough market for their products or services that they are at least partially insulated from the worst of the Eurozone effects.
Are they affected? Yes, of course. Take Siemens AG (SI), the massive German-based electronics and engineering conglomerate, which does extensive business in the global marketplace. Siemens pays a dividend, which currently yields 3%, and its stock sells for roughly $96 a share.
This is well off from its 52-week high of just under $147. While there are some headwinds to its business, this looks like a stock that's been unduly punished due to the events surrounding it, not due to those of its own doing.
There are other intriguing values. Vodafone (VOD), the UK-based telecom, pays a 3.5% dividend and continues to expand its business globally. France Telecom (FTE), which yields 9.9%, is trading very close to its 52-week lows. The telecoms, which are staple dividend stocks in the U.S. with titans Verizon (VZ) and AT&T (T), are often regarded the same way in Europe. The debt crisis has simply clouded the picture a bit.
Another category of dividends recognizable by U.S. investors is utilities. One interesting company, National Grid (NGG) owns natural gas and electricity infrastructure in the northeastern U.S. and the UK, where it's based. It pays a 4.4% dividend.
Another UK company, this one in the insurance industry, is Aviva PLC (AV). It currently sells near its year low and yields a fat 10.1%. It has maintained strong operating results even in the face of a difficult 2011, and has good prospects for 2012.
There are other groups, too. The traditional dividend-paying industries in addition to telecoms and utilities, such as pharmaceuticals and major oil companies, are worth looking at. These are businesses that, even with their European bases, are globally far-flung, and many of these do extensive business in the U.S.
With the U.S. economy improving, as well as its relative stability and separation from most of the effects of the euro debt crisis, these can be all be fertile territory for dividend hunters. Some of these companies are hungry to attract investors and so are increasing their payouts.
As with any stocks, you should look to the fundamentals and the soundness of the company, then make your decision. There's value in euro dividend stocks that can bring you profits.
I particularly second your choice of Vodafone as a great foreign dividend play worth serious consideration. For one thing, it owns 45% of Verizon Wireless, which provides it with a solid base in the US market as well. Secondly, Vodafone has tangibly demon strated its commitment to returning value to shareholders. Earlier this year, Verizon Wireless distributed a $10 Billion in cash to the parents of this joint venture. Vodafone took its share and made a special dividend to its shareholders. What did majority (55%) owner Verizon do? Well what I can tell you is what they didn't do, which was distribute any of their share of the $10 Billion to Verizon shareholders. I own Verizon stock as well as Vodaphone and I still haven't quite figured out yet what Verizon did with its share.
One further benefit for those who fear what may happen to the euro. Because Vodafone is based in the U.K., its financials are still reported in British pounds sterling.
Disclosure -- I am long on both Verizon and Vodaphone.
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