In this article, we present the 14 best European dividend stocks to buy now according to hedge funds. If you’re in a hurry, you can skip ahead and read the 5 Best European Dividend Stocks to Buy Now.
Most of us know Europe to be the first major world region to develop a modern economy based on agriculture and industrial development. According to the European Commission, the EU has "the largest economy in the world with a gross domestic product (GDP) per head of €25 000 for its 500 million consumers". They are the top trading partner for 80 countries. In an article, we mentioned the 11 Most Livable Countries in Europe. Europe has a large economy, but it isn't the largest economy in the world. That title still belongs to the United States and probably China will become the largest economy in about 10 years or so. Nevertheless, Europe is a better hunting ground for investors looking for stable and reliable companies to invest in.
The COVID-19 pandemic has taken a toll on many countries. Imposed lockdown and social distancing has left many economic collapses and Europe was not immune to this. The International Monetary Fund forecasts suggest that the aggregate Eurozone public deficit will hit a record level of 10.1% of GDP in 2020, with debt rising above the 100% of GDP threshold for the first time ever, to 101.1%. According to Deloitte, Spain took the strongest hit with its GDP shrinking 18%.
Despite the economic downfall, the European economy is slowly recovering from the trauma of the pandemic. Based on a report published in DW, during July, August, and September, as the rate of infections dropped and the authorities loosened lockdowns and travel restrictions. During those three months, the GDP grew by 12.7%, this was the largest increase since records started in 1995. According to the European Commission, the economy is not expected to go back to its pre-pandemic level” before 2023.
After four years of what many viewed as President Trump’s irrationally abrasive treatment of Germany as a key US ally, European Commission president Ursula von der Leyen was excited to speak of a “renewed partnership” with newly elected US President Biden. “Once again, after four long years, Europe has a friend in the White House,” she said. Not only was it exciting news for the European commission president, but also for Italy’s prime minister, Giuseppe Conte where he focused on the future,
“We are looking forward to the Biden presidency, with which we will start working immediately in view of our presidency of the G-20. We have a strong common agenda, ranging from the effective multilateralism that we both want to see, to climate change, green and digital transition and social inclusion.”
We think European dividend stocks may offer higher capital gains potential than the US dividend stocks because some European stock markets, like UK and Spain, trade at less than half of the United States' 10-year CAPE ratio. "We’re actually at a very interesting time in markets, whereby I think non-U.S. markets over probably the next six months to nine months will outperform the U.S.,” Quilvest Wealth Management's Bob Parker told CNBC in a recent interview. Parker expects European stocks to beat the US stocks and he is especially bullish on Spain, U.K., and Italy.
In order to create the list of the best European dividend stocks to buy now, we considered European dividend stocks that trade in the U.S. exchanges and ranked them using our hedge fund sentiment data. Our in-house research showed that by using the hedge fund sentiment data, we can identify a small group of stocks that can outperform the S&P 500 index on average by double digits annually. For instance, the portfolio for stock picks for our monthly newsletter has beaten the market by over 88 percentage points since March 2017 (see details here). Some of the portfolio choices for our monthly newsletter were also publicly shared on our website. In October, we posted this real estate stock and since then it’s been up more than 50 percent.
Based on our hedge fund sentiment data, we present to you the 14 best European dividend stocks to buy now among 800+ hedge funds tracked by Insider Monkey:
14. Unilever Plc (NYSE:UL)
No of HFs: 13
Total Value of HF Holdings: $159 Million
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. UL's current shares are $58 and offer a dividend yield of 3.95%. The stock was mentioned as one of the 10 Best Food Stocks to Buy Now. In an article, Lindsell Train mentioned that UL’s e-commerce revenues were up 76% year-on-year.
“One of the biggest holdings here includes Unilever. The way consumers have flocked to such brands in 2020, perhaps for reassurance, has been reassuring for the investors.
In Unilever’s most recent quarterly results the company reported its e-commerce revenues were up 76% year-on-year, up to 10% of the total. This does not mean that Unilever is turning into Internet business, but it does give reassurance that its brands – from Ben & Jerry’s to Domestos – can remain relevant in an increasingly digital world. By the way – have you tried Unilever’s new Marmite-infused peanut butter? It’s divine.”
13. SAP SE (NYSE:SAP)
No of HFs: 16
Total Value of HF Holdings: $1.80 Billion
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from a quarter earlier. SAP currently trade at $126 and offer a dividend yield of 1.37%. Polen Capital Management mentioned a few of their comments on SAP in their Q2 2020 investor letter,
“SAP, on the other hand, will likely be less affected in the near term by the COVID-19 shutdowns in our view. While it certainly will be impacted as countries around the world face GDP declines, Enterprise Resource Planning software is mission-critical, and we think the company’s cloud offerings will continue to benefit from its S/4 upgrade cycle.
Despite SAP’s strength, recurring revenue and durability, it was trading at about 20x forward earnings. While we do not focus on macroeconomics or speculate on related market movements, member states across Europe were unable to execute a coordinated effort to provide liquidity as quickly as the U.S. or other countries. We suspect the absence of a swift and unified response is at least partially responsible for most European indices being negative 20-30% in early May while the S&P 500 was only down 10%. Regardless of the cause, we think SAP is reasonably valued for such a strong and resilient growth business. While a less robust policy response could mean that it takes longer for growth to recover in Europe, SAP earns almost 70% of its revenues from outside of the continent.”
12. Anheuser Bush Inbev NV (NYSE:BUD)
No of HFs: 18
Total Value of HF Holdings: $958 Million
BUD ranks 12th in our list of the best European dividend stocks to buy now. The stock was mentioned as one of the 10 Best Beverage Stocks to Buy Now and 15 Largest Beer Companies in the World in 2020. BUD shares offer a dividend yield of 2.32%. Broyhill Asset Management mentioned BUD in a recent investor letter:
“We also diversified our beer exposure during the quarter, adding a direct investment in Ambev (ABEV) to compliment our existing investment in Anheuser Busch Inbev (BUD). As the current environment has punished highly leveraged businesses like BUD (despite the company’s ability to generate strong and recurring cash flow), the opportunity to own ABEV, with net cash on its balance sheet and the highest returns on capital in the industry—at a lower multiple than its parent—was too good to pass up.
Together, these names represent roughly 20% of our capital today. Given their cheap valuations, combined with the fact that beer and tobacco consumption has historically increased during recession, one could argue that we should have even more exposure to these Sin Stocks. In principle, we agree, and given the opportunity, we’d be happy to increase our positions. But in the interim, we are highly sensitive to maintaining balance in the portfolio. At one end, we own high quality, defensive businesses that should fare well in almost any environment. At the other end, we’ve begun building a portfolio of more cyclical businesses, positioned to rebound sharply and gain share once the clouds clear. We discuss a few of these investments below.”
11. Diageo Plc (NYSE:DEO)
No of HFs: 19
Total Value of HF Holdings: $466 Million
DEO shares currently trade at $160 and offer a dividend yield of 2.22%. They are known to be one of the world’s largest producers of spirits and beers. In 2020, the company announced some changes to their finance leadership team, Kathryn Mikells, Chief Financial Officer, Diageo commented:
"I am delighted Vinod will take on the combined role of Group Treasurer and Head of Global Audit and Risk. Vinod brings a wealth of operational, market and global experience to this new role and I would like to thank him for his strong leadership of investor relations. Lavanya’s presence in North America will enable us to continue to build on this platform. I wish them both every success in their new roles.’
10. Sanofi SA (NASDAQ:SNY)
No of HFs: 20
Total Value of HF Holdings: $1.24 Billion
SNY ranks 10th in our list of the best European dividend stocks to buy now. SNY shares are currently at $47 and offer a dividend yield of 3.60%. Generation PMCA talked about the stock in its 2020 Q3 investor letter:
“Sanofi, the French pharmaceutical company, is one of the largest drug companies globally. Last year Sanofi unveiled its “Play to Win” strategy, focused on reigniting growth, accelerating R&D, and improving profitability via operating efficiencies. A cornerstone of this new strategy is Dupixent, the first biologic approved to treat patients with atopic dermatitis whose disease cannot be controlled with a topical prescription. In Q3, Dupixent reached €1 billion in revenue. The company believes this drug can ultimately generate over €10 billion of annual revenue. Over the next 5 years we see Sanofi’s vaccine business growing mid-to-high digits on the launch of key influenza and PPH vaccines. As with Bristol Myers, the main risk relates to drug development. We are comfortable with its robust pipeline, with over 6 major therapeutics in development, and expect further growth from acquisitions. Our FMV estimate is €105 and the stock yields 3.7% while we wait for the share price to appreciate.”
9. Vodafone Group, Plc (NASDAQ:VOD)
No of HFs: 22
Total Value of HF Holdings: $677 Million
VOD ranks 9th in our list of the best European dividend stocks to buy now. VOD shares currently trade at $17 and offer a dividend yield of 9.09%. The company is one of the 11 Biggest Telecom Companies in the World. Vodafone is one of the leaders of technology communications through mobile, fixed, and broadband. Recently, the company announced a landmark partnership with Discovery, Inc. Ahmed Essam, Chief Commercial Operations and Strategy Officer, Vodafone Group, said
"I am extremely pleased to have made this agreement with Discovery, which extends our existing partnership and perfectly demonstrates Vodafone's positioning as one of Europe's leading video content platforms. Discovery will be a key part of our Entertainment offer, providing a rich choice of content that will enhance Vodafone's provision of a superior customer experience across its high-quality TV and flexible streaming services".
8. Novo Nordisk (NYSE:NVO)
No of HFs: 22
Total Value of HF Holdings: $3.29 Billion
The 8th best European dividend stock to buy now is NVO. The stock shares currently trade at $69 and have a dividend yield of 2.51%. Saturna Capital Corporation mentioned NVO in their Q1 2020 investor letter.
“Novo Nordisk provided the sole positive contribution to performance in the first quarter of 2020 as consistent demand for diabetes and other serious chronic disease treatments provided relative safety in a volatile market.”
7. ASML Holding NV (NASDAQ:ASML)
No of HFs: 23
Total Value of HF Holdings: $2.05 Billion
ASML has a relatively small dividend yield of 0.61%, but it operates in one of the high growth industries in the world right now. They are known as the world’s leading chipmakers. ASML reported €14.0 billion net sales and €3.6 billion net income in 2020. The growth is expected to extend in 2021 due to strong demand. ASML President and Chief Executive Officer Peter Wennink said,
"For 2021, we expect another year of growth driven by strong Logic demand and continued recovery in Memory. The build out of the digital infrastructure and the continued technology innovation is relevant to the consumer, automotive and industrial markets and drives demand across our entire product portfolio,"
6. BP Plc (NYSE:BP)
No of HFs: 30
Total Value of HF Holdings: $611 Million
BP shares currently change hands for $22 and offer a dividend yield of 5.67%. The company is one of the 15 Largest Energy Companies in the World. In an article, Broyhill Asset Management mentioned that BP is one of the largest, best managed, and well-capitalized companies in the industry.
“As if a global pandemic wasn’t enough, during the quarter OPEC and Russia decided to add an oil crisis to the list of things for investors to panic about. After oil’s largest one-day decline in history, we established a small position in Exxon Mobile (XOM) and British Petroleum (BP)—two of the largest, best managed, and well capitalized companies in the industry.
We don’t have a short-term view on oil, but we do know that the best cure for low oil prices is low oil prices. And with the sector trading at its lowest level relative to the market in history, we are willing to bet that the current extremes in negative sentiment willrevert to more normal levels—and more normal oil prices—at some point. In the interim, we are being paid 10% annually to wait.”
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Disclosure: None. 14 Best European Dividend Stocks To Buy Now is originally published at Insider Monkey.