It was nice while it lasted, but the AI-driven stock market rally is rapidly running out of gas. While the Magnificent 7 (the group of big tech companies that have driven the majority of this year’s gains) will likely finish the year higher, the rest of the S&P 500 has pretty much flatlined this year. With oil exploding 40% higher since June and interest rates on some maturities jumping to levels not seen since 2007, investors could be in for a rude awakening soon.
While the juicy Treasury yields are very tempting, they do not offer the total return potential that dividend-paying stocks do. Investors with concerns about the staggering U.S. debt and the potential for a government shutdown becoming very real issues for the domestic stock market may want to take a look across the pond. Often when income investors look for companies paying big dividends, they are drawn to the Dividend Aristocrats, a group of stocks we have written about frequently.
We were intrigued by the top European Dividend Aristocrats, which have a set of rules for entry that vary from their American counterparts. European companies qualify as aristocrats under the following conditions:
- An S&P Europe 350 Index member
- Ten consecutive years of increasing dividends.
- A float-adjusted market capitalization of at least US$ 3 billion
- A median daily trading volume of at least US$ 5 million
Ten years is far less than the 25 years required by companies in the S&P 500. Typically, this is because European companies do not value the dividend in the same manner as American companies. In fact, European companies tend to have a more conservative approach to rewarding shareholders with dividends.
We screened the top 30 European Dividend Aristocrats looking for the most liquid and well-known names for our readers who are looking for income and a degree of diversification away from the American indexes. However, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
British American Tobacco
This conglomerate got much bigger with the acquisition of Reynolds American in 2017. British American Tobacco PLC (NYSE: BTI) provides tobacco and nicotine products to consumers worldwide. It offers vapor products, tobacco heating products and modern oral products; combustible products; and traditional oral products, such as Swedish-style snus and American moist snuff. The company distributes its products to retail outlets.
The company’s New Categories business, which includes products outside of traditional cigarettes, saw revenues increase solidly over the past two years. It noted recently that non-combustible products, such as its Vuse vaping brand and Glo heated tobacco brand, now make up almost 12% of total operations.
Investors receive an 8.80% dividend. Citigroup just started coverage of British American Tobacco stock, and its $49.87 price target is higher than the consensus target of $45.17. Thursday’s closing share price was $31.38.
This is one of the largest producers of alcoholic beverages in the world. Diageo PLC (NYSE: DEO) produces, markets and sells alcoholic beverages worldwide, including scotch whiskey, gin, vodka, rum, beer, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness.
Diageo’s reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18-year-old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18-year-old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route and other Johnnie Walker super-premium brands, as well as The Singleton, Cardhu, Talisker, Lagavulin and other malt brands.
Shareholders receive a 2.73% dividend. BofA Securities has set its price target at $196. Diageo stock has a consensus across of just $176.91, and shares closed on Thursday at $149.79.
This is among the world’s largest pharmaceutical drug makers by sales and remains a top international pick across Wall Street. Novartis AG (NYSE: NVS) researches, develops, manufactures and markets health care products in Switzerland and internationally. The company operates through two segments.
The Innovative Medicines segment offers prescription medicines for patients and physicians. It also provides cardiovascular, ophthalmology, neuroscience, immunology, hematology and solid tumor products.
The Sandoz segment develops, manufactures and markets finished dosage forms of small molecule pharmaceuticals to third parties. It also provides protein-based or other biotechnology-based products, including biosimilars, as well as biotechnology manufacturing services and anti-infectives, such as active pharmaceutical ingredients and intermediates primarily antibiotics. Novartis has a license and collaboration agreement with Alnylam Pharmaceuticals to develop, manufacture and commercialize inclisiran, a therapy to reduce LDL cholesterol.
Novartis stock comes with a 3.45% dividend. The BofA Securities price target is $129. The consensus target is $117.25, and Thursday’s closing print was $102.33.
This is another top pharmaceutical company in Europe trading at very reasonable levels. Sanofi S.A. (NYSE: SNY) engages in the research, development, manufacture and marketing of therapeutic solutions in the United States, Europe and elsewhere.
Sanofi provides specialty care products, including human monoclonal antibodies; products for multiple sclerosis, neurology, other inflammatory diseases, immunology, rare diseases, oncology and rare blood disorders; medicines for diabetes; and cardiovascular and established prescription products. It also supplies poliomyelitis, pertussis and Hib pediatric vaccines, as well as influenza, adult booster, meningitis and travel and endemic vaccines.
In addition, Sanofi offers allergy, cough and cold, pain, digestive and nutritional products. Other products included daily body lotions, anti-itch products, moisturizing and soothing lotions, and body and foot creams, as well as powders for eczema. It also has various pharmaceutical products and vaccines in the development stage.
The dividend yield here is 3.51%. The $72 BofA Securities price target compares with a consensus target of $65.63. Sanofi stock ended Thursday trading at $53.01.
This is a top way to invest in the booming software segment. SAP S.E. (NYSE: SAP) provides enterprise application software products worldwide.
The company’s SAP S/4HANA offers software capabilities for finance, risk and project management, procurement, manufacturing, supply chain and asset management, and research and development. SAP SuccessFactors offers solutions for human resources, including HR and payroll, talent and employee experience management, and people and workforce analytics. Its spend management solutions cover direct and indirect spend, travel and expense and external workforce management.
The company also provides SAP customer experience solutions; SAP Business Technology platform, which enables customers and partners to build, integrate and extend applications in a cloud-native way; and SAP Business Network, which enables companies to collaborate with trading partners for supply chain visibility.
In addition, SAP Signavio helps customers to scan their operations to understand and improve their business process landscape. SAP’s industry cloud solutions provide modular solutions addressing industry-specific functions and sustainability-related solutions.
Shareholders receive a 1.76% dividend. SAP stock has a $176 target price at Sanford Bernstein. The consensus target is $153.03, and Thursday’s closing share price was $127.95.
This French integrated giant is another great way to play an energy rally from the European side. TotalEnergies S.E. (NYSE: TTE) operates as an integrated oil and gas company worldwide. Its Exploration & Production segment engages in oil and natural gas exploration and production activities in approximately 50 countries.
The Integrated Gas, Renewables & Power segment engages in the LNG production, shipping, trading and regasification activities; trading of liquefied petroleum gas (LPG), petcoke and sulfur, natural gas and electricity; transportation of natural gas; electricity production from natural gas, wind, solar, hydroelectric and biogas sources; energy storage activities; and development and operation of biomethane production units, as well as provides energy efficiency services.
The Refining & Chemicals segment refines petrochemicals, including olefins and aromatics; and polymer derivatives, such as polyethylene, polypropylene, polystyrene and hydrocarbon resins, as well as biomass conversion and elastomer processing. This segment also engages in trading and shipping crude oil and petroleum products.
The Marketing & Services segment produces and sells lubricants; supplies and markets petroleum products, including bulk fuel, aviation and marine fuel, special fluids, compressed natural gas, LPG and bitumen; and provides fuel payment solutions. It operates approximately 15,500 service stations.
Investors receive a 4.68% dividend. The BofA Securities price target is $83, while the consensus target is just $73.22. TotalEnergies stock closed at $66.84 on Thursday.
These six top European companies that trade on American exchanges have liquidity and all pay very dependable dividends. One caveat for U.S. investors is that many foreign governments automatically withhold taxes on dividends paid by companies incorporated within their borders. For most taxable accounts this means that a certain percentage of your dividend will be withheld by your broker.
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