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Soon enough, I’ll be leaving for an Italian vacation with my dad, wife, and daughter. We’ve been planning to do this trip for quite some time now, and it should be a great chance for some inter-generational family bonding.
I’m especially excited to attend Alba’s truffle festival, where mushrooms regularly trade at thousands of dollars a pound. Meanwhile, I’m pretty sure four-year-old Vela is going to be eager to get to Sicily, the birthplace of gelato, her favorite treat.
But before I head off in search of some of Europe’s most famous culinary delights, I thought this would be the perfect time to go hunting for something else from the continent — beaten-down dividend stocks.
After all, with so many economic problems hitting the region right now — and its markets getting hammered so hard — there have got to be some bargains out there, right?
Now, before I go any further, I do want to make something clear — none of these are current recommendations in Income Superstars nor am I saying that you should rush out and buy any of them.
Rather, they’re just the five most interesting candidates that I came across from a screen of European dividend stocks with the following criteria:
- An annual yield of 1 percent or better — that way they’re paying a legitimate dividend, and not just token amounts.
- A dividend payout ratio of 70 percent or less — so that the aforementioned dividend payments are well supported by money coming in the door.
- A price-to-earnings ratio of 25 or less — which ensures that pricing is at least reasonable by one common valuation metric.
- And long-term debt as a percentage of capital below 60 percent — one of my favorite ways of quickly gauging whether a company is too highly leveraged.
Also, I limited my search to companies with shares trading on U.S. exchanges. That way you’ll have no problem doing additional research, and you can easily buy or sell any of them without additional hurdles.
So, without further ado, here are the five stocks that most caught my attention …
#1. Accenture (ACN)
You probably know this Ireland-based consulting firm from their ads, many of which featured a pre-scandal Tiger Woods. But what you might not realize is that this is the company formerly known as Andersen Consulting.
The firm does everything from management consulting to outsourcing to technology, and its boasts an enviable list of clients around the world — everyone from Fortune 1000 companies to governments.
Despite the global slowdown, Accenture’s revenues have been growing at a steady clip — an estimated 17 percent in the fiscal year ended August — and profits have also been solid.
Going forward, gains should slow a bit … but the company also has a very healthy balance sheet with nearly $5.3 billion and practically no debt.
Meanwhile, the annual dividend is good for a bit more than 2 percent a year!
#2. Diageo (DEO)
It’s a corporate name that you probably don’t know, but its products are universally recognized. That’s because Diageo is one of the largest alcoholic beverage makers in the world — with names like Smirnoff, Johnnie Walker and Guinness under its umbrella.
I’m a sucker for consumer staples companies like Diageo because their products are always in high demand regardless of economic conditions. And you can see that in DEO’s results. Its sales have been steadily rising in the single digits while per-ADR earnings have climbed from $4.18 in fiscal 2010 to $4.84 in fiscal 2011. Profits are expected to go even higher in fiscal 2012, too!
What about the dividend? It’s currently good for about 3.5 percent a year, and I consider it very secure.
The only other thing to really consider with Diageo is it’s based in the U.K. That means a U.S. investor needs to be aware of how the British pound is likely to trade against the dollar going forward.
#3. LM Ericsson (ERIC)
Okay, how about we look at a Swedish company for something different?
LM Ericson is one of the world’s major phone manufacturers — both cellular and wireline — and its products are big not just in Sweden but around the globe. In fact, the company boasts terrific geographic diversification with North America accounting for about a quarter of its sales. Other important markets include Asia (20 percent), Western and Central Europe (10 percent), and Latin America (10 percent) … with other smaller pockets of the world filling in the rest.
Like other companies I’m talking about today, LM Ericsson has good financials, too. Its business did dip a bit recently, but Wall Street analysts are now forecasting resumed growth for both sales and profits.
The dividend, which equates to an annual yield of 3.3 percent, is also attractive.
#4. Royal Dutch Shell (RDS)
It’s no secret that oil has been pulling back lately, and taking related investments down with it. In my mind that only makes major integrated energy companies like Royal Dutch Shell even more attractive!
Its core oil business has been in operation since the late 1800s, but RDS does it all now — from oil refining to natural gas, oil sands, and even chemicals.
Earnings have been rebounding sharply in the last couple years, and the company is likely to see a new high watermark this year. The balance sheet is rock solid. Plus, the dividend is good for a very nice 4.6 percent a year.
Just please note that these shares could continue to bounce around a lot, especially if fears about a new global recession continue to gain traction.
#5. SAP AG (SAP)
Finally, to round out this list we have a German company — a major software firm that specializes in applications used by businesses for accounting and general management functions.
Obviously, SAP’s business prospects are largely dependent on the health of the world’s companies. But the good news is that the firm already has a leadership position, and most businesses will at least decide to continue maintaining and upgrading their existing services no matter which way the winds blow. Also, in a strange way, as companies look to cut costs amid a difficult environment, they often rely on products like the ones SAP produces to help them maximize efficiency.
While the annual dividend rate of 1.2 percent isn’t huge, this is yet another example of an interesting income-producing tech company … and I believe payments could continue rising in the future.
Like the rest of the companies I profiled today, SAP does also carry the double-edged sword of foreign currency exposure, too.
But at the very least, foreign dividend stocks like these are well worth investigating further. Because as I’m often reminded during my travels, you never know what treasures await you along the less-followed paths.
Best wishes,
Nilus
P.S. While the above candidates all warrant further investigation, if you want to find out what dividend stocks I’m recommending right now … just click here.
