5 European Dividend Aristocrats Offer Huge Income and Growth Potential
With September and the third quarter almost over, many investors are looking to the fourth quarter and beyond. While there is some hope that a total return to normal finally could be achieved by next year, one thing is for sure: the stock market is very overbought and some of the momentum stock trades are very crowded and have been hit hard, as we saw last week. With interest rates remaining very close to generational lows, top-quality dividend stocks may be the way to go for the rest of the year and in 2022.
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
Ten years is far less than the 25 years required by S&P 500 companies. 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 looking for the most liquid and well-known names for investors who are looking for income and a degree of diversification away from the American indexes. We also screened the BofA Securities European equity research database and found five of the top companies in the index that were Buy rated. 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 50% to £942 million in the first half of 2021. The company has 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.
British American Tobacco stock investors receive an 8.12% dividend. BofA Securities has a $50 price target on the shares, and the Wall Street consensus target is $50.06. The stock closed on Friday at $36.51 a share.
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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.
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 2.10% dividend. The BofA Securities price target on Diageo stock is $228. The consensus target is $208.48, and the final trade for Friday was reported at $189.85.
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).
It was reported last week that the company has acquired Arctos Medical, adding a preclinical optogenetics-based AAV gene therapy program and Arctos's proprietary technology to its ophthalmology portfolio. Arctos developed its technology as a potential method for treating inherited retinal dystrophies and other diseases that involve photoreceptor loss, such as age-related macular degeneration. Arctos's proprietary, light-sensitive optogene is delivered to specific retinal cells using gene therapy, thus turning the targeted cells into replacement photoreceptor-like cells.
Investors receive a 3.86% dividend. The $100 BofA Securities price target is less than the $104.80 consensus target. Novartis stock closed at $82.93 a share on Friday.
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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.
Sanofi has collaboration agreement with GlaxoSmithKline to develop a recombinant COVID-19 vaccine, and a research collaboration with Stanford University School of Medicine to advance the understanding of immunology and inflammation through open scientific exchange. It also has a collaboration with TrialSpark to execute clinical research studies in the areas of chronic obstructive pulmonary disease.
Investors receive a 2.85% dividend. BofA Securities has set a $69 price target. The consensus target on Sanofi stock is $65, and the shares closed at $47.94 on Friday.
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This is a great European consumer staples company for more conservative investors to consider. Unilever PLC ( NYSE: UL ) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Russia, the Americas, Europe and elsewhere.
Its Beauty & Personal Care segment provides skincare and haircare products, deodorants and skin cleansing products under the Axe, Clear, Dove, Lifebuoy, Lux, Pond's, Rexona, Signal, Suave, Sunsilk, TRESemmé and Vaseline brands.
The Foods & Refreshment segment offers ice cream, soups, bouillons, seasonings, mayonnaise, ketchup and tea categories under the Ben & Jerry's, Breyers, Brooke Bond, Heart (Wall's), Hellmann's, Knorr, Lipton, Magnum, The Vegetarian Butcher and Unilever Food Solutions brands.
The Home Care segment provides fabric solutions and home care and hygiene products under the Cif, Omo, Persil, Domestos, Seventh Generation and Sunlight brands.
Shareholders receive a 3.70% dividend. BofA Securities price target and the consensus target are both $68. Unilever stock ended last week at $54.86 per share.
These five top European stocks that trade on American exchanges have liquidity and pay very dependable dividends. One caveat for interested 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 the dividend probably will be withheld.