The four phases of a valuation cycle are shown in the chart below:
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Source: Global Investor 1.14 – Europe, August 2014, Credit Sussie
According to this CS report published earlier this year, European stocks are in the “Optimism” cycle and should get to the “Reality” cycle soon as earnings and macroeconomic fundamentals improve.
On Monday we looked at some of the reasons for investing in Australian dividend stocks. High payout ratio is one of the main advantages of Australian stocks.However a report published by the Boston Consulting Group questioned if Australian firms are missing out on potential growth opportunities as they are focused too much on satisfying investors’ hunger for yields. According to the authors of the report, this issue is especially important since the earnings growth of Australian firms are falling behind the world average but they continue to maintain the high dividend payout ratios as the chart shows below:
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Source: The 2014 Australian Value Creators Report, The Challenge of Growth, Boston Consulting Group
The payout ratio of Australian companies 20 to 30 percentage points higher than the world average.While the authors do not offer an answer to the title question of this post they do note however that “Growth has become increasingly challenging as the market lost some of its competitive prowess.”
Related ETF:
Disclosure: No Positions
I came across this interesting chart on the long-term real returns of US stocks. According to this chart, currently we are in the aftermath phase of a secular bull market.
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Source: Global Investor 1.14 – Europe, August 2014, Credit Sussie
Over the very long long-term equities tend to go higher…..
European stocks have been laggards this years relative to the decent performance of U.S. stocks. However moving forward, European stocks have better growth potential compared to their American peers for a variety of reasons two of which are discussed in this post.
1. Currently U.S. stocks are expensive while European equities are relatively cheap based on the P/E ratio. For example, as of Dec 11, the P/E for the US market is 19.5. The P/E ratios of some of the major European markets are lower at 15.8, 9.8, 19.4, 15.5 for Germany, Norway, Spain and the UK respectively. French stocks have a P/E of 19.4.
2. European equities as measured by the MSCI Europe Index have under-performed MSCI USA in US dollar terms since the sovereign debt crisis.MSCI Europe performed well in sync with MSCI USA from 2009 thru mud-2011. But since then European stocks have under-performed again.Though European equities have had an upward trend since mid-2012 they still have more room to grow in order to catch up with American stocks as shown in the below chart:
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Source: MSCI
Ten stocks from the Euro STOXX 50 Index are listed below with their current dividend yields for further research:
1.Company: Sanofi (SNY)
Current Dividend Yield: 4.23%
Sector: Pharmaceuticals
Country: France
2.Company: Danone SA (DANOY)
Current Dividend Yield: 2.98%
Sector:Food Products
Country: France
3.Company: BASF SE (BASFY)
Current Dividend Yield: 4,38%
Sector: Chemicals
Country: Germany
4.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.62%
Sector:Industrial Conglomerates
Country: Germany
5.Company: Telefonica SA (TEF)
Current Dividend Yield: 3.58%
Sector: Telecom
Country: Spain
6.Company: Volkswagen AG (VLKAY)
Current Dividend Yield: 2.48%
Sector: Auto Manufacturing
Country: Germany
7.Company: AXA Group (AXAHY)
Current Dividend Yield: 4.94%
Sector: Insurance
Country: France
8.Company: Banco Santander SA (SAN)
Current Dividend Yield: 9.68%
Sector: Banking
Country: Spain
9.Company: Eni SpA (E)
Current Dividend : 8.53%
Sector:Oil, Gas & Consumable Fuels
Country: Italy
10.Company:Air Liquide (AIQUY)
Current Dividend Yield: 2.65%
Sector: Chemicals
Country: France
Note: Dividend yields noted above are as of Dec 12, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: Long AXAHY and SAN