It was nice while it lasted, but the AI-driven stock market rally is rapidly running out of gas. While the Magnificent 7 (the group of big tech companies that have driven the majority of this year’s gains) will likely finish the year higher, the rest of the S&P 500 has pretty much flatlined this year. With oil exploding 40% higher since June and interest rates on some maturities jumping to levels not seen since 2007, investors could be in for a rude awakening soon.
While the juicy Treasury yields are very tempting, they do not offer the total return potential that dividend-paying stocks do. Investors with concerns about the staggering U.S. debt and the potential for a government shutdown becoming very real issues for the domestic stock market may want to take a look across the pond. Often when income investors look for companies paying big dividends, they are drawn to the Dividend Aristocrats, a group of stocks we have written about frequently.
We were intrigued by the top European Dividend Aristocrats, which have a set of rules for entry that vary from their American counterparts. European companies qualify as aristocrats under the following conditions:
- An S&P Europe 350 Index member
- Ten consecutive years of increasing dividends.
- A float-adjusted market capitalization of at least US$ 3 billion
- A median daily trading volume of at least US$ 5 million
Ten years is far less than the 25 years required by companies in the S&P 500. Typically, this is because European companies do not value the dividend in the same manner as American companies. In fact, European companies tend to have a more conservative approach to rewarding shareholders with dividends.
We screened the top 30 European Dividend Aristocrats looking for the most liquid and well-known names for our readers who are looking for income and a degree of diversification away from the American indexes. However, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
British American Tobacco
This conglomerate got much bigger with the acquisition of Reynolds American in 2017. British American Tobacco PLC (NYSE: BTI) provides tobacco and nicotine products to consumers worldwide. It offers vapor products, tobacco heating products and modern oral products; combustible products; and traditional oral products, such as Swedish-style snus and American moist snuff. The company distributes its products to retail outlets.
The company’s New Categories business, which includes products outside of traditional cigarettes, saw revenues increase solidly over the past two years. It noted recently that non-combustible products, such as its Vuse vaping brand and Glo heated tobacco brand, now make up almost 12% of total operations.
Investors receive an 8.80% dividend. Citigroup just started coverage of British American Tobacco stock, and its $49.87 price target is higher than the consensus target of $45.17. Thursday’s closing share price was $31.38.
Diageo
This is one of the largest producers of alcoholic beverages in the world. Diageo PLC (NYSE: DEO) produces, markets and sells alcoholic beverages worldwide, including scotch whiskey, gin, vodka, rum, beer, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness.
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