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Why These 5 European Dividend Aristocrats (Some With Huge Yields) Are Incredible Q3 Buys
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Well, that didn’t last long. As we suspected, each and every market rally until the Federal Reserve completes the interest rate hike cycle likely will be met with selling as investors try to go to cash and get away from the market’s downward spiral. That is why it may make sense to look to Europe for some ideas now, as economies there are doing somewhat better, and the inflation rate across Europe is lower than in the United States.
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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 Dividend 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
A decade is far less than the 25 years required by companies in the U.S Dividend Aristocrats, but 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 15 European Dividend Aristocrats in the BofA Securities European equity research database, seeking the most liquid and well-known names for investors looking for income and a degree of diversification away from the American indexes. The five top stocks we found all were rated Buy, but 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.
BofA Securities noted this in a recent report:
Momentum in Heat Not Burn continues with year-to-date market share up in the company’s key markets in Europe and in Japan driven by glo Hyper while at the same time Vuse continues to gain share of the vaping category (globally and in the US). Additional launches and further market rollouts planned for the second half of 2022 give us confidence that the strong momentum in non-combustibles will continue.
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British American Tobacco stock investors receive a 6.75% dividend. BofA Securities has a $54 price target on the shares. The consensus target is $52.83, and the stock closed on Wednesday at $42.69 a share.
Diageo
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.
Its 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 2.25% dividend. BofA Securities has a $200 price target on Diageo stock, and the consensus target is even higher at $231.18. The final trade for Wednesday was reported at $175.25.
Imperial Brands
This is another tobacco-related stock that pays a massive dividend to shareholders. Imperial Brands PLC manufactures, imports, markets and sells tobacco and tobacco-related products in Europe, the Americas, Africa, Asia and elsewhere.
Imperial Brands offers a range of cigarettes, fine cut and smokeless tobacco, papers, and cigars. Its next generation product (NGP) portfolio includes e-vapour products, oral nicotine and heated tobacco products. The company sells its products under various brands, including Davidoff, Gauloises, JPS, West, L&B, Winston, Parker & Simpson, blu, Pluze, Zone-X, Kool, Horizon, Backwoods, Skruf, Golden Virginia, Rizla and Dutch Masters.
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The company also engages in the distribution of tobacco and NGP products for tobacco and NGP product manufacturers, as well as various non-tobacco and NGP products and services. In addition, the company is involved in the management of a golf course; distribution of pharmaceuticals, POS software, and published materials and other products; printing and publishing activities; and provision of long-haul transportation, industrial parcel and express delivery, advertising and support management services. Further, it owns the trademarks and retails its products.
Investors receive a 7.90% dividend. The BofA Securities price objective of $27.70 would be a 52-week high, and the over-the-counter traded American depositary receipts closed on Wednesday at $22.58 apiece.
Novartis
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) develops, manufactures and markets a range of health care products worldwide.
Novartis operates through three segments: Pharmaceuticals, Alcon and Sandoz. The Pharmaceuticals segment offers patented prescription medicines for oncology, neuroscience, retina, immunology and dermatology, respiratory, cardio-metabolic, established medicines and cell and gene therapies. Key products include Cosentyx (for psoriasis and others), Entresto (heart failure), Lucentis (wet macular degeneration) and Gilenya (multiple sclerosis).
The European Commission recently approved its Tabrecta (capmatinib) drug as a standalone treatment for non-small cell lung cancer patients who had prior treatment with immunotherapy or chemotherapy. The approval is based on the Phase 2 Geometry mono-1 trial, in which treatment with Tabrecta showed positive overall response rates among adult patients, the company said. In the study, the overall response rate was 52% for the group of second-line patients and 44% for those previously treated. The most common adverse events include nausea and fatigue.
Investors receive a 2.65% dividend. The $100 BofA Securities price target compares with a $104.40 consensus target. Wednesday’s closing print for Novartis stock was $81.51.
Sanofi
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.
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The company 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.
Investors receive a 2.51% dividend. BofA Securities has set a $69 price target. The consensus target for Sanofi stock is $70.75, and the last trade to hit the tape Wednesday came in at $50.23.
These five top European stocks that trade on American exchanges have liquidity and all pay very dependable dividends, and in some cases large ones. Plus, all five are well situated for investors during what could be a long and brutal bear market, as demand for the products they sell rarely drops, even when prices increase.
One caveat for investors in the United States is that many foreign governments automatically withhold taxes on dividends paid by companies incorporated within their borders. This means that a certain percentage of your dividend may be withheld by your broker.
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