2024 is going to be seen as a positive year for European dividend stocks, but only in absolute terms. The Morningstar Europe High Dividend Equity category index, the Morningstar DM Eur Div Yld >2.5% NR, is up 9.5% in euros for the year (through Dec. 16), but lags the regional index, the Morningstar Europe NR, which is up 10.4%. The European dividend index also lags well behind its U.S. counterpart, the Morningstar US High Div Yld NR, which is up a hefty 25.0%.
European Dividend Companies Less Profitable Than US Counterparts…
The explanation for this difference in performance is to be found in the weight of the technology sector in both indexes: in the American index, technology stocks account for 15% compared to just 1% in the European index.
That said, looking at this yield comparison, one might think that it better to invest in high-dividend US companies than in European companies. But that is investing in the rearview mirror. It is important to look at valuations going forward. And in that direction, European stocks clearly compete with US stocks.
… But Pay Higher Dividends and are Less Expensive
In terms of dividend yield, European companies also outperform US companies. The Morningstar High Dividend Yield Index has a dividend yield of 2.63% (as of the end of November) while the Morningstar DM Eur Div Yld >2.5% NR EUR Index has a dividend yield of 4.95%.
In terms of valuation, European dividend companies are significantly more attractive than US dividend companies. The Morningstar US High Dividend Yield index trades at a Price/Fair Value of 0.98 (as of the end of November) versus 0.68 for the European index.
Cheap European Stocks That Have Increased Dividends
Among the large European companies that pay high dividends, there is a select group of stocks that have increased their dividends sharply in 2024 and are also undervalued.
The stocks in this select group, shown in the accompanying table, have a dividend yield of more than 3%, have increased their last dividend by more than 5% over the dividend paid in the same period of the previous year (if a company paid its last dividend in September 2024, that dividend is compared to the September 2023 dividend) and are listed with a Morningstar Rating of 4 or 5 stars.
The Morningstar Stock Rating helps investors discover stocks that are undervalued or overvalued. The rating is determined by three factors: the current stock price, Morningstar’s estimate of the stock’s fair value and the degree of uncertainty of the fair value. Stocks with 1 or 2 stars are considered overvalued while stocks with 4 or 5 stars are considered undervalued.
Key Morningstar Metrics
AXA CS
Analyst: Henry Heathfield, CFA
• Sector: Financial Services
• Morningstar Rating: ★★★★
• Economic Moat: None
• Price/Fair Value: 0.83
• Comment: “AXA has made adequate distributions. It targets a distribution ratio of 55%-65% of underlying earnings as an annual dividend. It plans to buy back just over €1.1 billion this year.”
Banco Bilbao Vizcaya Argentaria BBVA
Analyst: Johann Scholtz, CFA
• Sector: Financial Services
• Morningstar Rating: ★★★★
• Economic Moat: Strait
• Price/Fair Value: 0.85
• Comment: “We are pleased with BBVA’s dividend policy and return on equity. We believe BBVA still has excess capital, but we think it is keeping its powder dry for a possible acquisition in Spain.”
BNP Paribas BNP
Analyst: Johann Scholtz, CFA
• Sector: Financial Services
• Morningstar Rating: ★★★★
• Economic Moat: None
• Price/Fair Value: 0.69
• Comment: “We believe that BNP’s shareholder distribution policy is appropriate, given its limited capital surplus.”
GSK GSK
Analyst: Jay Lee
• Sector: Health
• Morningstar Rating: ★★★★★
• Economic Moat: Extensive
• Price/Fair Value: 0.6
• Comment: “We believe GSK’s dividends are historically too high. Over the past five years, GSK has paid a dividend of approximately 70% of normalized earnings, which has likely limited the ability to reinvest in the company through internal R&D and external acquisitions of new drugs in development. In addition, the 2016 special dividend seemed excessive and unnecessary. Following the divestment of the consumer group in 2022, GSK reduced the overall dividend to a level probably more appropriate for earnings.”
Infrastrutture Wireless Italiane INW
Analyst: Javier Correonero
• Sector: Real Estate
• Morningstar Rating: ★★★★★
• Economic Moat: Strait
• Price/Fair Value: 0.77
• Comment: “Inwit plans to distribute around 60% of its recurring free cash flow in the form of dividends, which we believe is a wise decision, as Italy has limited reinvestment opportunities and the company does not intend to expand into new geographies. We believe dividends can continue to grow at mid- to high-single-digit rates over the next few years as free cash flow also continues to grow.”
Nordea Bank NDA SE
Analyst: Niklas Kammer, CFA
• Sector: Financial Services
• Morningstar Rating: ★★★★
• Economic Moat: None
• Price/Fair Value: 0.81
Sanofi SAN
Analyst: Jay Lee
• Sector: Health
• Morningstar Rating: ★★★★
• Economic Moat: Extensive
• Price/Fair Value: 0.76
• Comment: “In terms of distributions, we consider Sanofi’s dividends to be about right. Overall, Sanofi is targeting a dividend payout slightly above 50% as a percentage of normalized earnings, which seems appropriate for a more mature sector.”
Svenska Handelsbanken SHB A
Analyst: Niklas Kammer, CFA
• Sector: Financial Services
• Morningstar Rating: ★★★★
• Economic Moat: Strait
• Price/Fair Value: 0.83
• Comment: “The absence of large acquisitions allows a stable distribution of excess capital to shareholders, mainly in the form of dividends.”
TotalEnergies TTE
Analyst: Allen Good, CFA
• Sector: Energy
• Morningstar Rating: ★★★★
• Economic Moat: None
• Price/Fair Value: 0.77
• Comment: “We rate Total’s shareholder distribution policy as adequate. Total was one of the few oil majors that maintained the dividend in 2020 and took additional steps to reduce costs and capital expenditures to keep the dividend affordable in the future. Most of the share buybacks took place during periods when share prices were below our estimate of fair value and therefore appear reasonable.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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