European Dividend Aristocrats: 40 Int’l Income Plays – Kiplinger’s Personal Finance

U.S. equity markets aren’t the only place where you can find income-producing royalty. Indeed, a quick look across the pond yields dozens, in the form of the European Dividend Aristocrats.

Admittedly, Europe’s dividend stocks have posted subpar returns compared to their U.S. counterparts over the past decade. However, that could change this year, says Goldman Sachs strategist Guillaume Jaisson, who points to an unusually large yield gap between European stocks and bonds. At present, yields on eurozone bonds are miniscule; the choice between dividend-paying stocks and bonds seems an easy one.

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

The European Dividend Aristocrats in specific look enticing given the difference between dividend growth here and abroad. Jaisson says the Stoxx Europe 600 Index is expected to deliver 10% dividend growth this year, well beyond the 7% forecast for the S&P 500. (And beyond 2022, says CME Group, S&P 500 dividend growth is predicted at 1% excluding inflation.)

Another financial strategist recommending European dividend stocks is Morningstar senior equity analyst Michael Field. At present, the selection of high-yielding European dividend stocks is much larger than previous years, Field says. As a result, investors can build a high-yielding portfolio of European stocks without overly relying on traditional income sectors like financial and utilities.

“The European Central Bank is unlikely to be as aggressive in raising interest rates as the Federal Reserve, giving companies on the continent some headroom,” Field adds.

Field warns that rising interest rates will likely penalize high-debt companies, however. So he recommends investors stick with high-quality European names that offer defensible moats and sustainable cash flow.

You can find many of these traits among 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 recognized for steady and growing dividends. Consistently rising dividends are not the norm in Europe so these stocks are a rare breed indeed.

Unlike the S&P 500 Dividend Aristocrats, which must deliver a minimum of 25 consecutive years of dividend growth, European Dividend Aristocrats need only show 10 years of stable or increasing dividends.

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Another important difference is the frequency of payout. U.S. dividend stocks tend to pay dividends quarterly, whereas European payers tend to distribute income semiannually.



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