Europe’s Got Plenty Of Room To Raise Its Dividends

Europe’s Got Plenty Of Room To Raise Its Dividends
Luke Suddards

11 months ago1 min

If dividends are what you’re after, Europe may be worth a look. Its average dividend payout ratio (light blue line) – i.e. the amount of dividends paid from a company's profits – is near levels seen during the European debt crisis of 2011 and the global financial crisis in 2008-09. In other words: super low. And that suggests there’s plenty of room for dividends to be raised.

And you could look to financials, commodities, and energy to find shares worth snapping up. Banks’ prospects are on the up, with interest rate increases helping grow their margins. The continent’s energy and other commodity-related companies are boasting better-looking balance sheets, having slimmed down their big project expenditures over the years in a move that has led to reduced supply and higher commodity prices. This makes dividend growth much more likely.

Historically, dividends have provided around two-thirds of European stock returns. And with stocks likely to have a tough year in terms of price growth, income from dividends could be a key source of return this year. But there’s also the possibility of a best-of-both-worlds scenario, if stocks do have a good year – particularly in banking and energy stocks as they’re looking exceptionally cheap, with forward price earnings ratios below 10. If this tickles your taste buds, you could consider the iShares STOXX Europe 600 Banks UCITS ETF (ticker: EXV1; expense ratio: 0.46%) and the iShares MSCI Europe Energy Sector UCITS ETF (EYED; 0.18%).



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