European equity indices have outperformed their American peers so far this year unlike last year when the S&P 500 was the winner. Compared to the S&P 500’s year-to-date return of -0.9% as of Mar 11th, the returns of major European indices are listed below:

UK’s FTSE 100: 2.4 %
France’s CAC 40: 17.0 %
Germany’s DAX Index: 20.4 %
Spain’s IBEX35 Index: 7.2%

Since European stocks have already run up substantially relative to U.S. stocks, some investors especially income investors may be wondering if they want to get into European stock at current levels. The answer to that question is a big yes. Despite the current rise, many markets in Europe offer attractive investment opportunities. For dividend investors Europe is still a fertile hunting ground. In this post let me list three solid reasons to invest in European dividend stocks now:

1. The gap between dividend yields of stocks and the yields on government and corporate bonds is very wide. Historically this gap has not been this wide according to a research report by Allianz Global Investors.

Click to enlarge

2. European firms pay high dividends compared to other regions of the world as shown in the chart below:

The average dividend yield stood at 3.3% at the end of 2014 based on MSCI Europe.The US dividend yield is in the 2% range. Outside of Europe, Australia and New Zealand companies also have high dividend payouts.

Source: Dividends instead of low interest rates, March 2015, Allianz Global Investors

3.European stocks have still room to run according to Nicolas Simar, head of the Equity Value Boutique at ING IM. From an article by Mr.Simar in Investment Europe:

Prices of European equities have yet to fully reflect the ECB’s QE and corporate margins should improve this year due to accelerating global economic growth, which should generate higher dividends. European earnings are still 30% below their previous peak in 2007 while US earnings are 20% above theirs: this gap will close as the ECB remains accommodative and the declining Euro boosts exports and adds to top-line growth.

Another gap set to close is that between the real yields of European equities (3.3%) and German Bunds (0.39%), which is around 90% of the peak seen in September 2008. ING IM believes there are still opportunities to exploit this gap before it narrows.

Selected Cyclical stocks are particularly attractive after their poor performance in 2014 depressed market expectations to the point that some of them are now priced for a recession.

Source: ING IM: European dividend stocks offer buying opportunity in 2015, Mar 12, 2015, Investment Europe

Ten dividend stocks from ten countries on the continent are listed below for further research:

1.Company: Nordea Bank AB (NRBAY)
Current Dividend Yield:  4.55%
Sector: Banking
Country: Sweden

2.Company: Edp Energias De Portugal SA (EDPFY)
Current Dividend Yield: 7.06%
Sector:Electric Utilities
Country: Portugal

3.Company:Diageo PLC (DEO)
Current Dividend Yield: 3.03%
Sector: Beverages
Country: UK

4.Company: Nestle SA (NSRGY)
Current Dividend Yield: 3.20%
Sector: Food Products
Country: Switzerland

5.Company: BASF SE (BASFY)
Current Dividend Yield: 4.00%
Sector: Chemicals
Country: Germany

6.Company: Total SA (TOT)
Current Dividend Yield: 6.52%
Sector: Oil, Gas & Consumable Fuels
Country: France

7.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 6.40%
Sector: Oil, Gas & Consumable Fuels
Country: The Netherlands

8.Company: Telefonica SA (TEF)
Current Dividend Yield: 6.27%
Sector: Telecom
Country: Spain

9.Company:Telenor ASA (TELNY)
Current Dividend Yield: 6.21%
Sector: Telecom
Country: Norway

10.Company:Enel SpA (ENLAY)
Current Dividend Yield: 4.06%
Sector: Electric Utility
Country: Italy

Note: Dividend yields noted above are as of Mar 12, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

The global list of Multi-National Companies(MNCs) are dominated by American and European firms. These mega corporations have revenues in the billions and employ thousands of workers in countries outside of their home countries. Based on revenues some of the firms are bigger than the economies of small and medium size countries. In the global marketplace firms compete fiercely against one another to gain market share. Competition is especially high between U.S. and European multinationals as they try to take a bigger slice of the global market for their products. In this post let us compare five American firms from five different industries to their European peers.

1. Consumer Goods:
Based in Cincinnati,OH Procter & Gamble Co (PG) was founded in 1837 and operates in about 180 countries. P&G owns hundreds of brands including Ariel, Dawn, Downy, Duracell, Always, Bounty, Charmin, Pampers, Crest, Gillette Mach3 to name a few.Currently the stock has a dividend yield of 3.16%. The five-year price return (excluding dividends) is 27% and the 10-year return is 50%. PG had a 2:1 stock split in 2004 when the price was about $111.00. Today the stock closed at $81.39. A $10,000 invest five years ago would be worth $15,737 according to S&P data.

Unilever PLC (UL) is one of P&G’s competitors based in the UK-Netherlands. Though Unilever also trades as UN for its Dutch version called the Unilever NV I have used UL due to the 0% foreign dividend withholding taxes for US shareholders. Founded in 1885 Unilever also owns a multitude of brands some of which are Dove, Rexona, Axe, Lux, Sunsilk, Lipton, Magnum, Cif, Domestos, Persil, Omo and Surf.Unilever’s brands are much more popular in many of the former British colonial countries than P&G’s brands due to historical connections.Currently UL has a 3.44% dividend yield.The five-year price return and 10-year price returns are 43% and 97% respectively. A $10,000 invest five years ago would be worth $17,977. UL had a 9:5 stock split in 2006.

Though this is a single example, in this case Unilever’s stock has yielded better returns for investors than P&G. So investors may want to consider owning foreign multinationals than simply going with domestic multinationals.

2.Chemicals:
US Multinational: The Dow Chemical Company (DOW)
Current Dividend Yield: 3.51%
5-year Price Return: 61%
10-year Price Return: 1%

European Peer: BASF SE (BASFY)
Current Dividend Yield: 3.89%
5-year Price Return: 58%
10-year Price Return: 194%

3. Food:
US Multinational: Mondelez International, Inc (MDLZ)
Current Dividend Yield: 1.69%
5-year Price Return: 15%
10-year Price Return: 6%

European Peer:Nestle SA (NSRGY)
Current Dividend Yield: 3.20%
5-year Price Return: 47%
10-year Price Return: 183%

4. Oil:
US Multinational: Exxon Mobil Corporation (XOM)
Current Dividend Yield: 3.24%
5-year Price Return: 25%
10-year Price Return: 47%

European Peer: Royal Dutch Shell plc (RDS-B)
Current Dividend Yield: 5.83%
5-year Price Return: 8%
10-year Price Return: -2%

5.Tobacco:
US Multinational: Altria Group Inc. (MO)
Current Dividend Yield: 3.86%
5-year Price Return: 156%
10-year Price Return: -19%

European Peer: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.39%
5-year Price Return: 60%
10-year Price Return: 187%

Please note that countries such as Switzerland, Germany and Netherlands have high dividend withholding taxes. However they can recouped if stocks are held in a regular account. If those stocks are held in retirement accounts such as IRA or 401Ks then the dividend tax will be lost forever.Since I illustrated the sample stocks with ADRs any foreign currency issues do not apply.

This simply exercise shows that it is possible to earn higher returns by venturing beyond the U.S. shores. Though it is only a small sample size similar returns can be found with many other foreign stocks.

Note: Dividend yields and returns noted above are as of Mar 11, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions