- There are some good European businesses with yields above 5% that will probably grow in the future.
- There is even a Dutch speed algorithm trader that offers a yield of 5.39% and hasn’t lost money on any single day in the last 3 years.
- There are also companies to avoid, like Italian banks.
On the U.S. stock market, it’s difficult to find dividend yields of above 5% from long-term established companies that have a stable business and good long-term prospects. But in Europe, there are plenty of companies with dividend yields of above 5% that seem like ok businesses and are too cheap to be true.
In today’s article, I’ll dig deep into high yielding European stocks to give you investing ideas and to see if they are just cheap or if there are some underlying risks that make the cheapness justified.
I’ve divided the content into two parts. In today’s post, I’ll analyze the first 10 companies of the 20 I’ve planned to discuss. In tomorrow’s article, I’ll analyze the remaining 10 companies and discuss the risks foreign investors run into when investing in Europe.
The Stocks & Individual Analysis
Figure 1: Part 1 of 20 European stocks with dividend yields of above 5%. Source: Author’s data.
Aegon N.V. – 5.27%
Aegon N.V. is a multinational life insurance, pensions, and asset management company headquartered in The Hague, Netherlands. It has been slowly raising its dividend in the last few years after cancelling it from 2009 to 2011. Its profits, which is something normal for an insurer, are very volatile and the main risk is a repeat of the 2009 crisis which would definitely lead to a new dividend cut.
Figure 2: Aegon’s volatile earnings but stable dividend. Source: Morningstar.
Aegon is a globally diversified life insurer with 60% of revenue coming from the Americas, mostly in the U.S.
Figure 3: Aegon’s revenue distribution. Source: Aegon.
To add to the cheapness, Aegon has a price to book value of 0.4. This is mostly because the company has an inadequate solvency ratio which makes the market concerned about future possible dividend cuts, as was the case in the past. However, the group has increased its solvency ratio in recent quarters which has given a strong positive push to the stock.
Figure 4: Aegon’s fundamentals. Source: Aegon.
So the primary risk for Aegon is systemic in nature in the form of a European or U.S. recession. Until then, you can enjoy the over 5% dividend yield with growth coming from higher interest rates and geographic growth in Eastern Europe. Nevertheless, as precaution, first dig deeper into the hidden risks all insurers run, but if economic growth continues in Europe, you can expect more upside from Aegon.
Atrium European Real Estate ATRS – 6.35%
ATRS offers exposure to eastern Europe through ownership of shopping centers which is a very interesting diversification play. 84% of revenue comes from Poland, the Czech Republic, and Slovakia. The company has been increasing its dividend and the tenants are well renowned European retailers.
Figure 5: Atrium’s business model. Source: Atrium.
Eastern Europe is growing at a stable rate and the company is also continuing to invest in those areas. Therefore, you can expect the company to continue to grow over time.
Figure 6: Atrium’s growth strategy. Source: Atrium.
As for the risks, I don’t see the Eastern European shopping centers environment fall under the same Amazon disruption crisis like U.S. retailers have experienced, at least for the short to medium term. In the long term, who knows, but those interested in global real estate diversification at a relatively high yield should look at Atrium.
BinckBank – 5.17%
BinckBank is an independent Dutch online discount broker.
The dividend is high, but the payout ratio is above 400%, so the question is whether the dividend will be sustainable. The company has been investing heavily in order to achieve growth which has failed to arrive in the past 10 years.
There was huge excitement surrounding this growing discount broker 5 years ago, but the excitement quickly faded. Without new business, Binck could fade into oblivion and dividend cuts shouldn’t be excluded in the long term as the discount brokerage industry is one with low barriers to entry and lots of competition.
Figure 7: Binck’s stock price has been steadily declining. Source: Morningstar.
BPost SA – 5.41%
BPost is a Belgian post operator that hasn’t really grown in the last 10 years due to constantly declining domestic mail which is somehow compensated by growth in e-commerce and parcel delivery. This is again a highly competitive environment and it seems that the cow will be milked as long as possible, until something happens, negative or positive.
Figure 8: BPost’s fundamentals. Source: Morningstar.
BT Group – 5.15%
British Telocom is another cash cow that will see its milk dry up eventually. The issue with telecoms is that we will soon expect communication to be free. Just think of Whatsapp and Skype.
In the future, all you’ll be paying for is an internet line, if we don’t go wireless globally. Therefore, telecoms should be approached with caution, and not as long term investments. Traders should take advantage of shorter-term stock price fluctuations and dividend payments.
Correios de Portugal SA – 4.57%
CTT is another post company with declining revenues, earnings, and payout ratios above 100%. This isn’t a sustainable environment. However, the company is investing into leveraging its postal offices around Portugal by launching a bank, capturing the e-commerce growth in parcels, and even expanding in Mozambique.
Figure 9: CTT’s retail network is amazing and offers great leverage to future business models. Source: CTT.
If the company manages to implement all these new financial and delivery business into its existing network, it could really become the low cost provider and eliminate the competition which would lead to future growth in earnings and dividends as the costs aren’t high given that the real estate is already there.
Energias de Portugal – 5.76%
EDP is another interesting Portuguese investment as the company has shown nothing but stability in the past decade and is expected to continue to do so in the future, if not even grow.
Figure 10: Stable fundamentals with growing book value amidst two European recessions. Source: Morningstar.
There seem to be no significant risks to EDP ahead and investors should enjoy stable dividends in the future.
Eurocommercial – 5.68%
Eurocommercial is another shopping mall REIT with properties in France, Italy, and Sweden. It’s similar to Atrium, but in a different region.
The company is currently benefitting from the economic revival in those countries, but be careful about its high earnings as most of the earnings growth can be attributed to approximate property revaluations in place of actual long-term cash flow benefits.
Revaluations increased the book value per share from EUR 2.75 to EUR 38.3, while revenue grew only 43%. Therefore, look at the company if you are interested in the dividend yield, but make sure to calculate investment ratios with realistic numbers.
Flow Traders – 5.39%
Flow Traders is a very interesting company. It trades only for its own account using its own algorithm as an advantage. It’s a Dutch speed trading company that has really taken advantage of the increased liquidity in the global environment and inflated asset prices.
FLOW specializes in exchange traded funds (ETFs) with 140 traders who traded $719 billion in ETFs and another $700 billion in commodities, stocks, futures, and currencies in 2016. FLOW usually makes 0.028% on a trade, so it’s required to make a lot of trades but according to the management, they only make trades where there is no risk.
Given the low volatility global environment, the company hasn’t grown in the last two years but they are trying to expand and apply what they have been doing with ETFs onto currencies under the assumption that traders could provide better deals to currency traders than they could to banks.
Figure 11: Flow managed to operate for 34 months without a daily loss. Source: Bloomberg.
Making money with no risk by taking advantage of price differences measured in parts of cents sounds very attractive. This reminds me of Long Term Capital Management. As long as the ETF’s underlying structure works, Flow will continue to make money but as soon as the liquidity dries up in ETFs, Flow is bound to be left hanging at some point. The ETF environment has only been growing since Flow was founded in the late 2000s, so there is no track record in a negative ETF environment. We’ll see if FLOW disappears in the next decade or manages to apply its business model to currencies and asset classes that could easily double or even quadruple its business, perhaps even more.
Just a quick take on FLOW’s advantages:
- It trades ETFs not interesting to other players like Citadel Securities LLC, emerging markets and small ETFs in different time zones.
- They are applying a similar approach to currency trading.
- Provides over the counter ETF trading for major pension fund counter-parties. 550 of them, in fact.
For now, it looks like FLOW is a risk-less money-making algorithm. If you’re interested in such investments, it’s definitely a company to take a look at.
Intesa Sanpaolo – 6.08%
Intesa is an Italian bank and I’m simply going to conclude here by saying that only traders who dig into short term news and trends affecting such banks should be interested. Never look at an Italian financial as a long-term investment, they are simply too risky.
I hope to have given you some interesting international diversification dividend ideas as there are many quality businesses described above. Keep reading Investiv Daily as tomorrow we’ll discuss the second batch of interesting European dividend yielders and an outlook of the systemic risks affecting such investments.