{"id":30056,"date":"2012-06-05T12:02:44","date_gmt":"2012-06-05T16:02:44","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/06\/european-dividend-stocks-what-you-need-to-know\/"},"modified":"2012-06-05T12:02:44","modified_gmt":"2012-06-05T16:02:44","slug":"european-dividend-stocks-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/06\/05\/european-dividend-stocks-what-you-need-to-know\/","title":{"rendered":"European Dividend Stocks: What You Need to Know"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

For all the talk of dividend investing in recent years, it\u2019s easy to lose sight of the fact that the average U.S. stock, as measured by the S&P 500, still yields a paltry 1.9%.<\/p>\n

Even the Vanguard Dividend Appreciation ETF (NYSE: $<\/span>VIG<\/a>)<\/strong>, a core long-term holding in my ETF portfolios\u2014barely yields 2%, and this is a dividend-focused product.\u00a0\u00a0\u00a0<\/p>\n

In a world where the 10-year Treasury note yields an almost laughable 1.5%, the dividends onU.S.stocks might seem downright rich in comparison.\u00a0 But for an investor looking to fund their retirement through portfolio income, they still don\u2019t pay the bills.\u00a0
\nNot surprisingly, many investors have gravitated to higher-yielding European stocks.\u00a0 The dividend yield on large-cap European stocks is more than double that of their U.S. counterparts; as a case in point, the Vanguard MSCI Europe ETF (NYSE:$<\/span>VGK<\/a>)<\/strong> yields 4.3%, compared to the 1.9% offered by the SPDR S&P 500 ETF (NYSE:$<\/span>SPY<\/a>).<\/strong><\/p>\n

The PowerShares International Dividend Achievers ETF (NYSE: $<\/span>PID<\/a>)<\/strong>, which like VIG, focuses on dividend growth rather than high current yield, also pays out significantly more than its U.S. counterpart, at 3.1% vs. 2.0%.<\/p>\n

Still, those higher yields have offered little protection to investors who have seen their \u201csafe\u201d dividend paying stocks lose 20% of their value in a matter of weeks.\u00a0 \u00a0I see a lot of value inEuropeat current prices, and I believe the ongoing sovereign debt crisis has created opportunities for those of us willing to take the risk of a little short-term volatility.\u00a0 But given that the months ahead promise to be a rocky road, it\u2019s important that investors understand a few things about European dividend stocks.<\/p>\n

Here are a handful of points to keep in mind.<\/p>\n

    \n
  1. When looking at the dividend history, remember to take into account the effects of currency moves.<\/strong>\u00a0 As a case in point, consider the Anglo-Dutch consumer products giant Unilever (NYSE: $<\/span>UL<\/a>).<\/strong>\u00a0 Unilever has raised its dividend for over 25 consecutive years.\u00a0 But if you look at the company\u2019s dividend history<\/a> on, say, Yahoo Finance, you\u2019ll see that the dividend paid by the U.S.-traded ADR appears to shrink in some years.\u00a0 This is due to changes in currency exchange rates.\u00a0 So, when doing your research, look for the dividend history in the reporting currency and take the posted dividend history of ADRs with a grain of salt.\u00a0<\/li>\n
  2. European firms tend to make two payments per year.<\/strong>\u00a0 For U.S. investors accustomed to regular quarterly payouts, the European tradition can be confusing and send conflicting signals.\u00a0 There is generally a larger \u201cfinal\u201d dividend declared and paid after the fiscal year has finished and a smaller \u201cinterim\u201d dividend roughly six months later.\u00a0 Again, using Unilever as an example<\/a>, you can see that this was the company\u2019s policy prior to 2010. (Starting in 2010, Unilever adopted a policy more in line with American norms of paying a regular quarterly dividend; see the company\u2019s statement<\/a> for more info.)<\/li>\n
  3. Rather than keep the dollar amount of the dividend stable, European firms have historically sought to maintain a stable payout ratio.<\/strong>\u00a0 This means that the cash payout to investors can vary wildly based on the company\u2019s performance in any given year.\u00a0 While this makes sense from the company\u2019s perspective and allows for more financial flexibility, it can be frustrating for investors who depend on the dividend to meet their current income needs.\u00a0 As capital markets become more global and investors more vocal, European companies are slowly adopting the \u00a0practice of paying more regular dividends.\u00a0<\/li>\n<\/ol>\n

    One final point to consider when investing inEuropeis the maturity of the markets.\u00a0Europeis a developed continent with an aging population.\u00a0 With little need to invest for\u00a0 growth in their home markets, European companies are, by and large, mature cash cows that throw off a lot of cash.\u00a0<\/p>\n

    In The Future for Investors<\/a>, Jeremy Siegel pointed out that slow-growth companies (or even negative growth) companies can make fantastic investments, and he used tobacco giant Altria (NYSE:$<\/span>MO<\/a>)<\/strong> as an example.\u00a0 By Professor Siegel\u2019s calculations, Altria was the most profitable investment of the past century, <\/em><\/strong>despite the fact that tobacco has been a dying business since at least the 1970s.\u00a0\u00a0\u00a0 With no need to invest in a non-existent future and being restricted from advertising, Altria had little else to do with its cash than to pay dividends.\u00a0<\/p>\n

    Though I would stop short of comparing the entire European stock market to Big Tobacco, the lessons are much the same.\u00a0 A slow-growth, high-dividend portfolio can produce spectacular returns over time.<\/p>\n

    I\u2019ve recommended PID as a \u201cfishing pond\u201d for solid European dividend stocks, and I would reiterate that recommendation today.\u00a0 Consider buying the ETF or, if you\u2019re up for the challenge of researching individual stocks, use the ETF\u2019s underlying holdings as a screened list of high-quality dividend payers from which to choose.\u00a0<\/p>\n

    Disclosures: Sizemore Capital is long MO, PID, UL, and VIG<\/em><\/p>\n

     <\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    By The Sizemore Letter For all the talk of dividend investing in recent years, it\u2019s easy to lose sight of the fact that the average U.S. stock, as measured by the S&P 500, still yields a paltry 1.9%. Even the Vanguard Dividend Appreciation ETF (NYSE: $VIG), a core long-term holding in my ETF portfolios\u2014barely yields … <\/p>\n

    Continue reading “European Dividend Stocks: What You Need to Know”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-30056","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30056","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=30056"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30056\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=30056"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=30056"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=30056"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}