Why Invest in European Aerospace & Defense Stocks

Posted by David Hunkar on 29 January 2015, 4:11 am

The Aerospace & Defense industry is one of the important and growing industries in both the U.S. and European. Despite budget cutbacks in the U.S. stocks in the industry have done extremely well in the past few years.Similarly European defense companies have also performed well in recent years. Though countries in Europe spend far less than the U.S. on defense, the industry gets top priority when it comes to budget allocations for obvious reasons. In addition, the recent terrorist attack in France are sure to lead governments to spend more funds on military and surveillance operations.This will benefit the companies operating in the industry.

Europe-based defense firms are also big players in the U.S. market.For example, UK’s BAE Systems(BAESY) competes with Boeing, Lockheed Martin and others for Pentagon contracts.

The STOXX® Europe TMI Aerospace & Defense Index is composed of the major 15 firms in the industry. The index is has more than doubled in the past five years in Euro price terms as the chart shows below.So far this year the index is up by nearly 12%.

Click to enlarge

Source: STOXX

Of the 15 components in the index, 13 trade on the US OTC markets. They are listed below with their current dividend yields:

1.Company: Airbus (EADSY)
Current Dividend Yield: 1.82%
Country: The Netherlands

2.Company: BAE Systems (BAESY)
Current Dividend Yield: 4.30%
Country:UK

3.Company: Chemring Group (CMGMY)
Current Dividend Yield: 2.90%
Country: UK

4.Company: Cobham (CBHMY)
Current Dividend Yield: 4.03%
Country: UK

5.Company: Finmeccanica (FINMY)
Current Dividend Yield: Dividends not paid
Country:Italy

6.Company: Meggitt (MEGGY)
Current Dividend Yield: 2.62%
Country: UK

7.Company: MTU Aero Engines (MTUAY)
Current Dividend Yield: 1.99%
Country: Germany

8.Company: Qinetiq Group (QNTQY)
Current Dividend Yield: 2.63%
Country: UK

9.Company: Rolls-Royce (RYCEY)
Current Dividend Yield: 2.71%
Country: UK

10.Company: Safran (SAFRY)
Current Dividend Yield: 2.32%
Country: France

11.Company: Thales (THLEY)
Current Dividend Yield: 2.90%
Country: France

12.Company: Ultra Electronics (UEHPY)
Current Dividend Yield: 2.60%
Country: UK

13.Company: Zodiac Aerospace (ZODFY)
Current Dividend Yield: 1.07%
Country:France

SAAB and Senior do not trade on the US markets.

Note: Dividend yields noted above are as of Jan 28, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long SAFRY

The Dividend Payout Ratio of British Stocks Continues To Rise

Posted by David Hunkar on 28 January 2015, 3:11 am

Capita Asset Services of UK published their latest edition of Dividend Monitor report yesterday. They forecast the headline dividend payouts of up to £86.1bn this year. In 2014, UK companies paid out £97.4bn in dividends up 21.0% from the previous year. Some of the key points from the report include:

“Special dividends distort true picture as underlying dividends rise just 1.4%, weakest growth since 2010
Sterling’s early 2014 strength knocked £3.5bn off full year total
Q4 shows improvement, with 4.0% underlying growth fastest since Q3 2013 as currency effects start to reverse on strengthening US dollar
Tesco cancellation of dividend to cost investors £900m, but 2015 outlook is brighter
Capita revises forecasts headline payouts up to £86.1bn in 2015
Underlying total to climb by 5.7% to £83.6bn”

Source: 2014 Dividends Weaker Than Feared But UK Investors Feel Benefit Of Stronger, Jan 26, 2015, Mondovisione

The chart below shows the yearly growth of dividends since 2007:

Click to enlarge

Source: Capita Asset Services

According to a note by Citi, UK firms have paid out higher dividends since the financial crisis and they predict the trend will continue. The chart below shows the UK dividend payout ratio since 1965:

Click to enlarge

Source: Why equities are at their cheapest in 100 years, Interactive Investor

Currently British firms have a dividend yield of about 3.5% compared to just around 2% for the S&P 500. The FTSE 100 is up 4.4% year-to-date as of Jan 26 relative to the S&P 500 which is basically flat so far this year.

British stocks also offer an added advantage for US investors as there there is no dividend withholding tax except for REITs.

Investors looking to gain exposure to British stocks can consider the following ten companies:

1.Company: Unilever PLC (UL)
Current Dividend Yield: 3.46%
Sector: Food Products

2.Company: HSBC Holdings PLC (HSBC)
Current Dividend Yield: 5.18%
Sector: Banking

3.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.25%
Sector:Tobacco

4.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 5.66%
Sector: Oil, Gas & Consumable Fuels

5.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 5.05%
Sector: Wireless Telecom

6.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 3.97%
Sector: Pharmaceuticals

7.Company: BP PLC (BP)
Current Dividend Yield: 6.17%
Sector: Oil, Gas & Consumable Fuels

8.Company:SSE PLC (SSEZY)
Current Dividend Yield: 6.25%
Sector:Multi-Utilities

9.Company: National Grid PLC (NGG)
Current Dividend Yield: 4.92%
Sector:Multi-Utilities

10.Company: Rolls-Royce PLC(RYCEY)
Current Dividend Yield: 2.67%
Sector: Aerospace & Defense

Note: Dividend yields noted above are as of Jan 27, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

One Solid Reason to Invest in European Dividend Stocks

Posted by David Hunkar on 27 January 2015, 3:11 am

European firms generally tend to pay a higher portion of their earnings as dividends to shareholders. Unlike US firms they do not target a specific dividend amount or an yield but rather target to payout a specific payout ratio. One reason to invest in European dividend paying stocks is that their average payout ratios are higher than the world, US and Asia stocks as shown in the chart below:

Click to enlarge

Source: The Truth About Europe, Franklin Templeton Investments

Though most European companies dividends only twice a year the amounts paid out can be substantial compared to their peers in USA and Asia.

Five European dividend stocks are listed below for consideration:

1.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.27%
Sector:Tobacco
Country: UK

2.Company: Novartis AG (NVS)
Current Dividend Yield: 2.85%
Sector: Pharmaceuticals
Country: Switzerland

3.Company: Total SA (TOT)
Current Dividend Yield: 6.17%
Sector: Oil, Gas & Consumable Fuels
Country: France

4.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.71%
Sector:Industrial Conglomerates
Country: Germany

5.Company: Nestle SA (NSRGY)
Current Dividend Yield: 3.11%
Sector: Food Products
Country: Switzerland

Note: Dividend yields noted above are as of Jan 23, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

What is the Impact of Lower Crude Oil Prices on Canada

Posted by David Hunkar on 26 January 2015, 3:17 am

The Canadian economy will underperform the US economy over the next few years due to the impacts of lower crude oil prices according to a special report by Thomas Julien of Natixis. Here is the summary of the report:

The fall in oil prices is likely to result in mixed effects for Canada. On the one hand, the fall in petrol prices and the depreciation of the exchange rate against the US dollar in a context of accelerating US growth ought to stimulate household spending and give a boost to industries that are not exposed to the energy sector. The mining sector, on the other hand, which accounts for a significant share of the Canadian economy, will suffer from a persistently low level of crude prices. We therefore expect the continuation of the cyclical recovery in the short term, which is likely to be dampened in the medium term by a weakening in investment in the mining sector and probably a softening of the internal demand due to some deleveraging in the household sector. This configuration reinforces our expectations in terms of monetary tightening, which we expect will start at the end of 2015 (i.e. after the Fed). Based on this view and as oil prices can dip lower in Q1,we believe there is room for the exchange rate to depreciate further in the short term.

The three key points noted by Mr.Julien are:

Canadian consumers will benefit from the lower gas prices.
The mining sector will be hurt if the current oil price trend stays for sometime.
The depreciation of the Canadian dollar against the US dollar will give a boost to non-oil industries that export to the US.

Though the favorable exchange rate would benefit non-oil industries labor costs are high in Canada compared to the U.S. especially in the manufacturing sector as shown in the chart below:

Click to enlarge

Canadian exports to the U.S. have been flat in the past few years:

Click to enlarge

Source: Should we be worried about Canada in 2015?, Jan 15, 2015, Natixis

Five Canadian stocks trading on the NYSE are listed below:

1.Company: TELUS Corp (TU)
Current Dividend Yield: 3.93%
Sector: Telecom

2.Company: BCE Inc (BCE)
Current Dividend Yield: 4.55%
Sector: Telecom

3.Company: TransCanada Corp (TRP)
Current Dividend Yield: 3.68%
Sector: Oil & Gas Transportation

4.Company: Enbridge Inc (ENB)
Current Dividend Yield: 3.01%
Sector: Oil & Gas Transportation

5.Company: Magna International Inc(MGA)
Current Dividend Yield: 1.58%
Sector: Auto Components

Note: Dividend yields noted above are as of Jan 23, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Related:

Hey Canadian investors: Buy America, Jan 27, 2015, Financial Post

IHS Energy 50: The World’s Largest Listed Energy Firms Lists

Posted by David Hunkar on 25 January 2015, 8:19 am

IHS acquired the prestigious energy and oil consultancy PFC Energy in 2013. Since then, the popular PFC annual ranking of the world’s largest energy and related-industry firms have been renamed as IHS Enery 50. This year’s ranking using 2014 data will be published next month. For now lets take a look at the 2014 rankings.

NOTE: All the data shown below including are based on 2013 data.

1. The Global Top 15 Oilfield & Drill Services Firms:

Click to enlarge

Even after falling nearly 50% with the crash in oil prices in the past few months, Schlumberger(SLB) has a market capitalization of over $104 billion.Competitor Halliburton’s (HAL) stock price has declined from $74 to $41 now. In November of last year Norwegian oil services company Seadrill(SDRL) suspended its dividend payments causing a major crash in its stock price. Today the stock goes for about $10 a piece.France-based CGG SA (CGG) may have a rough ride for some time since Technip(TKPPY) ended its takeover plan.

2. The Global Top 15 Equipment, Engineering and Construction Firms:

Click to enlarge

The above companies provide all the equipment and build the facilities and infrastructure needed by the big oil majors. Their share prices have also declined sharply in recent months. However investors can nibble at some of these companies at current levels.

3. The Global Top 15 Midstream & Infrastructure Firms:

Click to enlarge

4. The Global Top 15 Refining & Marketing Firms:

Click to enlarge

5. The Global Top 15 Exploration & Production Firms:

6. The IHS Energy 50:

Click to enlarge

Note:
IOC – Integrated Oil Companies
NOC – National Oil Companies

Source: IHS Energy 50, IHS

Most of these IOCs and NOCs have major declines in their market caps since last year. It would be interesting to see how this year’s ranking turns out. The Russian oil firms Gazprom and Lukoil trade on the OTC with the tickers OGZPY and LUKOY respectively.

Download: IHS Energy 50 Full Report for 2014 (in pdf)

Disclosure: Long TKPPY

TopForeignStocks.com

Your Money. Your Future.

Why Invest in European Aerospace & Defense Stocks

The Dividend Payout Ratio of British Stocks Continues To Rise

One Solid Reason to Invest in European Dividend Stocks

What is the Impact of Lower Crude Oil Prices on Canada

IHS Energy 50: The World’s Largest Listed Energy Firms Lists