European stocks were average to poor performers last year.However they can be good bets for this year for many reasons including upcoming elections in countries such as Greece, Ireland, Spain and the UK and more importantly yesterday’s major announcement from European Central Bank.

From a Bloomberg article:

Mario Draghi led the European Central Bank into a new era, committing to a quantitative easing program worth at least 1.1 trillion euros ($1.3 trillion) to counter the threat of a deflationary spiral.

The ECB president shrugged off determined opposition led by German officials with a pledge to buy 60 billion euros every month through September next year in a once-and-for-all push to put more cash into circulation and revive inflation. To assuage critics, the region’s 19 national central banks will make 80 percent of the purchases and take on any risk they carry.

A near-stagnant economy and outright declines in consumer prices forced Draghi’s hand six years after the Federal Reserve took a similar step — and three months after the U.S. central bank ended its purchases. The 67-year-old Italian’s gamble is that the benefits of QE — should it work — outweigh the threat of a backlash in Germany.

Source: Draghi Commits ECB to Trillion-Euro Asset-Purchase Plan to Fight Deflation, Jan 22, 2015, Bloomberg

Indeed by any measure 1.1 Trillion Euros is a ton of money that is bound to have a major impact on asset prices especially equities. Even before this bold move by the ECB, European equity indices were up nicely so far this year. The returns of the major European benchmark indices as of Jan 21, 2015 are listed below:

• UK’s FTSE 100: 2.5%
• France’s CAC 40: 5.0%
• Germany’s DAX: 5.0%
• Spain’s IBEX35: 0.5%

On the other hand the S&P 500 was down by 1.3% year-to-date.

Investors holding cash to invest can take advantage of the attractive prices of many European stocks. Ten stocks from Euro-zone are listed below with their current dividend yields for potential investments:

1.Company: ING Groep NV (ING)
Current Dividend Yield: Not paid
Sector: Banking
Country: The Netherlands

ING recently paid off the loan it took from the Dutch state and is on track to start dividend payments this year that has been suspended since the global financial crisis.

3.Company: Banco Santander SA (SAN)
Current Dividend Yield: $0.26
Sector: Banking
Country: Spain

Santander raised more than a billion dollar in new capital a few weeks ago but has cut its dividend by two-thirds. The fall in stock price presents an excellent opportunity for long-term investors.

3.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.57%
Sector:Industrial Conglomerates
Country: Germany

4.Company:Edp Energias De Portugal SA (EDPFY)
Current Dividend Yield: 6.25%
Sector: Electric Utilities
Country: Portugal

5.Company:Air Liquide (AIQUY)
Current Dividend Yield: 2.58%
Sector: Chemicals
Country: France

6.Company: Total SA (TOT)
Current Dividend Yield: 6.12%
Sector:Oil, Gas & Consumable Fuels
Country: France

7.Company: Allianz SE (AZSEY)
Current Dividend Yield: 4.40%
Sector:Insurance
Country: Germany

8.Company: AXA Group (AXAHY)
Current Dividend Yield: 4.79%
Sector: Insurance
Country: France

9.Company: Anheuser-Busch InBev SA/NV (BUD)
Current Dividend Yield: 2.75%
Sector: Beverages
Country: Belgium

10.Company: Technip SA (FTI)
Current Dividend Yield: 4.44%
Sector: Energy Equipment & Services
Country: France

Note: Dividend yields noted above are as of Jan 22, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long FTI, SAN, ING, AXAHY

Diversification is one of the simple and effective way to reduce risk and increase potential returns. Putting all eggs in one basket is a recipe for disaster.It is important to diversify not only among asset classes, but also between sectors when investing in stocks, between countries, regions, etc.

The first decade of the 21st century was dubbed the lost decade for stocks. I wrote an article about this topic in Dec, 2009. From that article:

Click to enlarge

The chart shows the return of U.S. S&P 500 Index from Dec 31, 2009 thru Dec 14, 2009. The S&P 500 lost 23% in this period. During the same period market indices in developed countries like France, Finland, etc.showed relatively better performance. The main stock market indices in the Netherlands, Japan and Greece performed worse than the S&P 500.

It is interesting to note that while the S&P lost 23%, the Brazilian Bovespa Index gained an astonishing 318% during the same time.This is one reason why US investors should look beyond the US for better returns.

Michael Batnick, Director of Research of Ritholtz Wealth Management also discussed about the lost decade for stocks in an article. His take on this subject also shows the importance of diversification.From the article by Mr.Batnick:

Click to enlarge

The period from 2000 through 2009 is referred to as a “lost decade” for U.S. stocks. Over this period, investors were not rewarded with an equity risk premium, they were better off in risk-free treasury bills. Not only were they not rewarded, they were punished by two peak-to-trough crashes of greater than fifty percent.

While all that is true for the S&P 500, there were other areas of the market that delivered excellent returns over the same period of time. Emerging Markets were up 154%, U.S. bonds were up over 80% and U.S. Reits were up 175%!

Source: What Lost Decade?, The Irrelevant Investor ; Hat Tip: The Big Picture

As the title of this post says the key point to remember is to diversify.Failure to diversify can lead to no gain or even a loss after a decade of investing.

Related ETFs:

• iShares MSCI Emerging Markets Index Fund (EEM)
• Vanguard Emerging Markets ETF (VWO)
• SPDR S&P 500 ETF (SPY)
• SPDR STOXX Europe 50 ETF (FEU)
• SPDR DJ Euro STOXX 50 ETF (FEZ)

Disclosure: No Positions