Top 10 Best European Dividend Stocks for 2021

As a European Dividend Growth investor, It can be frustrating with the lack of resources available for European Dividend Stocks. Most of the books I have read are all US-based and this has influenced my portfolio which is dominated by US companies.

However, if you dig deep enough there are blogs from within the European community.

Some of the Blogs that I find most interesting are:

1. European DGI
2. Pollies Dividend
3. The European View

All these blogs offer insights on Dividend Growth stocks from a European perspective. Inspired by these, I am hoping to add a little bit more of a European flavour on this Blog.

Reason for adding European Dividend Growth Stocks

One reason I want to expand my European portfolio is because US stocks are trading at around all time highs. I have found value in the US but these tend to be stocks that are in transition such as $WBA. While doubts exists, companies like Danone in Europe look undervalued and have a more stable outlook.

It is also more common for US companies to increase their dividend even if they get into trouble. A Dividend Aristocrat is an esteemed title but sometimes this means companies can look to borrow just to pay the dividend to keep this title. European companies tend to pay out a percentage of there free cash flow as dividends. This will mean the more money they make the more they can pay out and vice versa.

I know the US dollar is showing signs of weakness which might actually make US stocks more attractive. But I want to increase exposure to where I live and the EURO. While I am not worried about currency fluctuations at the moment, It would still be nice to have a portion of my income in my own currency.

My personal aim is to have 65% in US dividend growth companies and 35% in European dividend growth companies.

Best European Dividend Stocks Watchlist

The below 13 companies are the main European Dividend Stocks that I will be monitoring throughout the year. The plan is to write a full in-depth analysis of each company like I have done for ROYAL DUTCH SHELL. This will give me better understanding of each company and will allow me to buy the company when the price is right.

So without further ado and in no particular order, my best European dividend stocks watchlist for 2021 are as follows:

1. Munich Reinsurance Company

Country	Germany
Sector	Financials
Industry	Insurance
Dividend Increase	3 years
10 Year DGR	5.48%

Munich Re are an Insurance company who are in the Reinsurance, Primary Insurance (ERGO) and Asset Management segments.

Munich Re has not cut their dividend in 50 years which is a strong record for a European Company. There payout ratio is below 50% . This gives me confidence that they can continue this streak for the next 5 years.

For those who are interested, we analysed this company on our Podcast Dividend Talk which you can listen to below.

I will look to add some shares if the company dips below €200

2. Unilever

Country	United Kingdom
Sector	Comsumer Staples
Industry	Consumer goods
Dividend Increase	10
10 Year DGR	7.05%

Unilever Group  is a consumer staples conglomerate with operations in beauty and personal care, foods and home care. The company owns more than 400 consumer brands. Brands you might know are Dove soap, Vaseline moisturizer and Hellmann’s mayonnaise.  

Unilever recently completed its unification within its legal structure and now trades under Unilever PLC. While they have cut their dividend over the course of there history, they have consistently being paying dividends since 1984.

3. Sanofi

Country	France
Sector	Health Care
Industry	Health Care
Dividend Increase	26
10 Year DGR	2.34%

Sanofi is primarily on the Euronext Paris exchange (SAN) but is also available on the NASDAQ exchange (SYN).

Sanofi has paid a continuously rising dividend for the last 26 years making them a European Aristocrat. This is very rare for European Dividend Stocks. The last Increase cane in April 2020 to €3.15 a share which is paid annually.

The earnings payout ratio is a little concerning at 121% but I give more weight to the FCF payout ratio. Which is 76%. This is at my upper limit so I like to check the balance sheet to see how risky they are.

Net debt to EBITDA measures total debt relative to company earnings while net interest cover measures the ability to pay interest on the debt.

Sanofi has net debt of 1.80 times its EBITDA and an interest ratio of over 12 which is good.

The dividend Yield is 4.09% which is quite high for a compnay like sanofi.

Using a Dividend discount model the fair value of the company is €98. Running a Discount cash flow analysis, I estimate the fair value of the company to be €124

Splitting the difference I estimate the fair value to be €111 which leaves them just over 44% undervalued a the current price of €79

4. Red Electrica Corp. SA

Country	Spain
Sector	Utilites
Industry	Utilities -Regulated Electric
Dividend Increase	20
10 Year DGR	8.42%

Red Electrica  operates electrical transmission grids in Spain, Peru, Chile and Brazil. The company also owns a telecommunications fiber optic network covering 50,000 kilometres across Spain.

Red Electrica plans to diversify its revenues across electricity transmission, telecommunications and technology services businesses. This diversification will achieve a more balance mix of regulated and unregulated profits. The company is also investing into renewable energy such as wind and solar. Renewable energy will become a more prominent player for European countries to reach their 2030 goals.

Red Electrica are also building out a telecom infrastructure that can handle the bigger loads associated with growth in cloud computing, cybersecurity, Big Data and the Internet-of-things.

Red Electrica is a reliable dividend utility and have being paying dividends since 1999.

5. Glanbia Plc

Country	Ireland
Sector	Consumer Staples
Industry	Packaged Foods
Dividend Increase	10
10 Year DGR	12.40%

Glanbia are a mid cap company with a market cap of €2.97 Billion. They were formed in 1997 when Avonmore Foods plc and Waterford Foods plc merged.

Since the merger they have grown from a simple Irish dairy producer to a global nutrition brand. Some of the brands you may be familiar with are

1. Optimum Nutrition
2. Slim Fast
3. American style Cheddar cheese

Why this company may be interesting – 

Glanbia has shown some good dividend growth over the last 10 years. Their current yield of 2.7% is attractive giving that the historical yield hovers around 1.5%

The Payout Ratio from earnings is usually between 25 and 30% and under 40% from Free Cash flow. FCF has been growing over the last 10 years and they look to have a strong balance sheet.

I currently have this company valued at around €17 so looks to be undervalued at them moment.

6. Smurfit Kappa

Country	Ireland
Sector	Consumer Discrentionary
Industry	Packaging & Containers
Dividend Increase	9
10 Year DGR	16.98%

Smurfit Kappa are a packaging company that serves companies like Danone and P & G.

Although they cut the dividend in the last financial crash they have been paying a dividend each year since 2011. 9 years is a decent length of time for an Irish Dividend Company.

The current Price is €39.04 and the dividend yield is 2.85%.  The Payout Ratio from earnings is 45% and only 10% from Free Cash flow. FCF has been growing over the last 10 years and they look to have a strong balance sheet.

Their latest Performance review in 2020 showed Revenue growth of 3%, with strong growth in Europe and America and an EBITDA growth of 11%.

7.Danone SA

Country	France
Sector	Consumer staples
Industry	Food Processing
Dividend Increase	5 years
10 Year DGR	5.76%

Danone is a consumer staple and operating in 130 countries across all five continents. They strive to meet the needs of consumers through health focused and sustainably produced food and beverages. Some brands that you may know are Actimel, Activia and Evian

Danone has a decent track record for a European dividend growth stock. While they have held their dividend in 2013/2014 they have been paying dividends for nearly 3 decades.

At first glance they look to have a safe dividend, Revenue and Earnings are growing and the transition to focus on the more health-conscious consumer will serve them well going forward.

8. Royal Dutch Shell

Country	Netherlands
Sector	Energy
Industry	Oil and  Gas
Dividend Increase	1 years
10 Year DGR	N/A

Royal Dutch Shell cut their dividend in 2020 as the pressure from COVID-19 came soon after the oil crisis a couple of years ago. Usually a dividend cut would mean that I would sell a company. However I believe a dividend cut was the right move for the business.

While you may view RDS as an Oil Company, There biggest segment is in Natural Gas and they are also in the early stages of transitioning to Renewable energy.

While I have no doubt they next decade will not be smooth sailing, I believe they have the right management team in place to make this transition a success.

I wrote a review on Royal Dutch Shell here

9. British American Tobacco

Country	United Kingdom
Sector	Consumer staples
Industry	Tobacco
Dividend Increase	20 years
10 Year DGR	5.83%

British American Tobacco is one of the top 3 tobacco companies in the world with brands such as Dunhill, Rothmans and Camel.

BAT has been growing their dividends since at least 2000 and in the last 5 years, the dividend growth rate is 5.99% which is lower than the 7.93% of the S&P 500.

The EPS payout ratio is around 70% and the FCF payout ratio is a little over 50% which keeps in line with their dividend policy of paying out roughly 65%.

They have a forward P/E ratio of around 8 which is significantly lower than the 10 year average of 14 and a current dividend yield of 7.6%

If BAT can reach a P/E ratio of 15 again by 2022 than you would potentially see a total ROR of 47.4%

One word of warning is that the tobacco industry has been in decline in developed countries for some time. BAT are notable for their presence in emerging markets but the threat of increased regulation and the ever-increasing number of investors seeking ethical investments may mean we might not see a return to high valuation levels.

10. Siemens AG

Country	Germany
Sector	Industrials
Industry	Industrial Machinery
Dividend Increase	7 years
10 Year DGR	1.55%

Siemens AG have a rich history and have been in existence since 1847.

A world leader in Digital industries, Siemens are prominent players in Smart infrastructure and mobility and has also a soin off called Siemens Healthineers.

Siemens has a long history of distributing dividends from 1987 although they have cut the dividend in 2020. The dividend cut was a small cut which makes you wonder why they bothered, but the dividend is back at the level it was at in 2015. they typically aim for a payout ratio of 40% – 60%.

While they currently look overvalued by about 40% to me, they are a company that I would consider buying on any dip in 2021.

Conclusion

These are the top 10 European dividend stocks that I will be watching in 2021. I plan on writing a detailed analysis for each company and will put the links in this article as I write them. If there are any other European Stocks that you feel I should include in this list. Please let me know in the comments below. If you would like to receive these articles in your inbox when I write them, then please consider signing up below.

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