European Dividend Aristocrats: 40 top international dividend stocks

The US stock markets aren’t the only place you can find income-generating royalties. In fact, a quick glance across the pond reveals dozens in the form of European Dividend Aristocrats.

Admittedly, Europe’s dividend stocks have underperformed their US counterparts over the past decade. That could change this year, however, says Goldman Sachs strategist Guillaume Jaisson, who points to an unusually large yield gap between European equities and bonds. Currently, eurozone bond yields are tiny; Choosing between dividend stocks and bonds seems easy.

Additionally, Jaisson notes that higher-yielding dividend stocks are less sensitive to interest rate increases, and their stable income payments appear more attractive in both high-inflation and high-volatility environments, where capital gains look less like a lock.

Europe’s Dividend Aristocrats look particularly enticing given the difference between domestic and foreign dividend growth. Jaisson says the Stoxx Europe 600 index is expected to deliver dividend growth of 10% this year, well above the 7% forecast for the S&P 500. (And after 2022, according to CME Group, the S&P 500 dividend growth is forecast to be 1% excluding inflation.)

Another financial strategist who recommends European dividend stocks is Michael Field, a senior equity analyst at Morningstar. Right now, Field says, the selection of high-yielding European dividend stocks is much broader than in previous years. As a result, investors can build a high-yield portfolio of European equities without over-reliance on traditional income sectors such as financials and utilities.

“The European Central Bank is unlikely to hike interest rates as aggressively as the Federal Reserve, giving continental companies some leeway,” adds Field.

But Field warns that rising interest rates are likely to penalize heavily indebted companies. As such, he recommends investors stick with quality European names that offer defensible moats and sustainable cash flow.

Many of these traits can be found in the European Dividend Aristocrats — a small subset of the S&P Europe 350 Index.

The European Dividend Aristocrats

Like their U.S. counterparts, European Dividend Aristocrats are known for steady and growing dividends. Ever-growing dividends aren’t the norm in Europe, so these stocks are a rare breed indeed.

Unlike the S&P 500 Dividend Aristocrats, which are required to deliver at least 25 consecutive years of dividend growth, European Dividend Aristocrats are only required to show 10 years of stable or growing dividends.

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Another important difference is the payout frequency. US dividend stocks typically pay dividends quarterly, while European payers typically pay out earnings semi-annually.

In other respects the two groups of aristocrats are similar. Companies that earn this elite status are typically market leaders with multi-billion dollar valuations, consistent earnings, and mature business models.

The current crop of European Dividend Aristocrats features several names that stand out for their rich earnings and modest valuations. We’ll look at a few highlights and then make the full list.

  • British arms supplier BAE systems (BAESY, $36.63) is benefiting from the current geopolitical tensions that are fueling interest from European customers in its next-generation Tempest fighter jets. Already known for its Typhoon fighter jets and work on the F-35 fighter jets, BAE System has increased its dividends by 5% annually for the past three years. BAESY shares are returning 3.6%, or more than double the return of the US industrial sector. A P/E multiple of 14 equates to a 15% discount over competitors.
  • French drug manufacturer Sanofi (SNY, $52.03) is enjoying a wide moat thanks to its blockbuster drug Dupixent and strengthening its top-tier drug pipeline through acquisitions. Recent deals include Amunix, which is adding 20 new drug candidates to its oncology pipeline, and Origimm, which is developing the healthcare industry’s first vaccine candidate for acne vulgaris — a condition that affects millions of teenagers and adults. Sanofi grew its dividends by 4% over the past five years in 2021 and by 3% annually. SNY yields 3.5%, which is about double that of healthcare, and its forward P/E of 12.3 is nearly 35% below the industry average.
  • British pensions expert Law & General (LGGNY, $15.21) has taken advantage of Europe’s aging population to deliver 11% annual EPS and dividend growth over the past decade. The company is one of Europe’s largest wealth managers thanks to its mature life insurance, pension and annuity segments, and is making large investments in housing and infrastructure that should pay off well in the future. LGGNY stock is yielding an impressive 8.1% and is valued at a low 7 times earnings estimates — a discount of about 35% to financial peers.
  • London-based consumer goods giant unilever (UL, $46.17) has a strong portfolio of brands and the benefits of significant scale and sustained cash flow. Its brands — including Dove soap, Knorr sauces and condiments, Lipton tea, and Hellmann’s mayonnaise — are household names. Unilever has increased its dividend by 5% over the past year and by 7% annually over the past five years. Yield is generous at 4.2% and UL shares are trading at 18 times earnings estimates – a slight discount to the consumer staples sector but a 10% discount to its own historical valuation.

There are 40 names on the 2022 European Dividend Aristocrats list. Members’ shares and their recent dividend yields are shown in the table below:

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