8 European Bank Stocks To Consider

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The stress test for European bank is over. The majority of the banks passed the test though some question the depth and usefulness of the exercises. Generally similar to US banks reporting better earnings, most of the large European banks are in the recovery phase and are reporting higher profits and lower provisions for losses. For example, on August 4th French banking group Societe Generale reported that profits more than tripled compared to a year ago.

Since there are thousands of banks across Europe, it is a wise strategy to go with the large banks that have better diversification of their assets across different markets. One way to identify to such banks is to select banks that are part of the DJ Euro Stoxx 50 Index. This index includes the 50 largest blue-chip companies in the Euro zone countries. Eight banks in the index account for about 19% of the total holdings.

The banks that are included in the DJ Euro Stoxx 50 Index are listed below with their current dividend yields:

1.Banco Santander (STD)
Current Dividend Yield: 5.86%
Spain

2. BNP Paribas (BNPQY)
Current Dividend Yield: 2.72%
France

3.Unicredit (UNCFF)
Current Dividend Yield: 1.46%
Italy

4.Banco Bibao Vizcaya Argentaria (BBVA)
Current Dividend Yield: 3.60%
Spain

5.Deutsche Bank (DB)LinkCurrent Dividend Yield: 1.37%
Germany

6.Societe Generale (SCGLY)
Current Dividend Yield: 0.56%
France

7.Intesa Sanpaolo (ISNPY)
Current Dividend Yield: 3.24%
Italy

8.Credit Agricole (CRARY)
Current Dividend Yield: 4.24%
France

Danish ADRs: Novo Nordisk and Torm

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In this post lets take a quick look at two companies from Denmark. These are the only two Danish stocks traded on the organized US exchanges.

1. Novo Nordisk (NVO)
Novo Nordisk is a healthcare company focused on the discovery, development, manufacturing and marketing of pharmaceutical products. It operates in two segments: diabetes care and biopharmaceuticals.

“The diabetes care segment covers Co.’s insulin franchise including modern insulins, human insulins, insulin-related sales and oral antidiabetic drugs as well as GLP-1 compounds in development for both the treatment of type 2 diabetes and as an anti-obesity agent. The biopharmaceuticals segment covers the therapy areas hemostasis management, growth hormone therapy, hormone replacement therapy, inflammation therapy and other therapy areas.”

NVO first started trading in the US markets in 1991. As of August 5th this year, the stock is up over 40%. Novo Nordisk announced on this week that operating profit rose by 19% in the first half of this year.Announcing the interim results, CEO Lars Rebien Sorensen noted “We are also very encouraged by the continued progress within our pipeline including both new insulins, liraglutide for obesity and haemostasis projects.” This company operates in a highly profitable niche area of the drug industry. Investors in the stock have done extremely well over the years. For example, as of July 30th a $10,000 investment in this stock five years ago would have grown to $36,114.

2. Torm A/S (TRMD)
Founded in 1889, Torm is shipping company engaged in the ownership and operation of deep sea product tankers and dry bulk carriers.”TORM consists of two business segments: the Tanker Division and the Bulk Division. The Company’s product tankers primarily carry refined products, such as naphtha, gasoline, gas oil, jet fuel and diesel oil. Its dry bulk vessels carry commodities, such as coal, iron ore and grain. As of December 31, 2009, the Company’s fleet of owned vessels consisted of 64 product tankers and four dry bulk carriers.”

Up until the global financial crisis, the Torm ADR had a great run. The high dividends paid at the time also attracted investors. However business fell drastically with the global collapse in shipping since the crisis began. As a result TRMD plunged to below $10 a share. The company also many of the management and experience workers recently. Torm posted a pre-tax profit of just US $3.0 million for the first quarter. With falling earnings the company suspended its highly dividend payments on the common stock. In May, CEO Jacob Balslev Meldgaard bought 100K shares thus showing confidence in the future of the company. At the current price of about $8 a share, Torm is a good investment for investors who are willing to hold it for at least a few years.

Two Chinese Chemical ADRs

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Out of the many Chinese stocks that are now available to US investors, two stocks that may warrant a look are chemical makers Chemspec International (CPC) and Sinopec Shanghai Petrochemical (SHI).

Just like banks are the most important part of an economy, chemical companies are critical to the growth of other industries. This is simply because most of the items we consume have some of chemicals in them. From drugs to foods to carpets, chemicals are the fundamental building block of the modern life. Hence investors looking to gain some exposure to Chinese growth, can evaluate the following chemical companies for potential long-term investment.

1. Chemspec International (CPC)
Chemspec is a China-based contract manufacturer of specialty chemicals. These chemicals are used in electronics, pharmaceuticals and agrochemicals. The company supplies fluorinated specialty chemicals to a number of international pharmaceutical companies which use them in the manufacture of various drugs.

In 1Q,2010 total sales were RMB220.2 million (US$32.3 million), an increase of 9.7% from the same quarter of last year.Chemspec is a mid-cap stock with a market cap of about $281 M. The current dividend yield is about 2.27%.

2. Sinopec Shanghai petrochemical (SHI).
Sinopec is a petrochemical company that “processes crude oil into a range of products, including synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. It principally operates in four operating segments: synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products.” Sinopec is the largest ethylene producer by capacity in China and is also Asia’s largest oil refiner.

The current market cap is about $948M and the yield is 1.04%. JP Morgan has over 7% stake in Sinopec.

20 High-Yielding European Utility Stocks

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A recent “Heard on the Street” column in The Wall Street Journal discussed about the juicy dividends offered by European stocks.

From the article:

“Average dividend yields on European stocks are now higher than those on government bonds for only the third time in 30 years. On the past two occasions, in early 2003 and 2009, that heralded a rally in equities. But although equity markets are below long-term price-to-book ratios, and European stocks have rallied in recent weeks, analysts are cautious about forecasting big gains, noting an uncertain growth outlook and lingering fears on sovereign debt. That is good news for income investors.

This year, European equities will yield 4.1%, estimates UBS, almost twice that of U.S. peers. That is above the current yield on AA-rated corporate bonds (3.3%) and the coupon on a 10-year government bond for a weighted average of 11 euro-zone countries (3.6%). Unlike the latter two, dividend yields are well above their 10-year average.

True, dividends can be cut. Payments have been cut some 40% since 2008, versus cuts of less than 30% in the past three recessions. The cancellation of BP’s dividend in June took 12% off forecasts for U.K. companies’ second-quarter payments, notes Capita Registrars. Corporate earnings could still disappoint: UBS forecasts of 24% European earnings growth in 2010 and 10% in 2011 compare with a 7% long-run average, and a contraction last year and in 2008.

But corporate cash balances are at or near all-time highs and gearing at multiyear lows. Companies are slowly returning to the acquisition trail: July’s M&A deal volume globally was the highest this year, notes Dealogic, with Europe leading the way. But dividend payments still look sustainable: Dividend cover at 1.6 times free cash-flow is in line with a 10-year average, notes UBS.”

European banks have traditionally paid high dividends in the past. However it is better to avoid the majority of them as they are still reeling under pressure from many issues related to the sub-prime crisis.  Quoting JP Morgan, the journal piece noted that telecoms, energy and utilities offer 5% to 6% yields.

In order to identify the top utilities in Europe, I used the Dow Jones Stoxx Europe 600 Utilities Index.This index offers exposure to 31 of the large European water, gas and electricity companies.

The Top 20 components in the Dow Jones Stoxx Europe 600 Utilities Index are listed below with their dividend yield as of August 9, 2010:

1.E.ON AG (OTC: EONGY)
Current Dividend Yield: 6.18%
Germany

2.GDF Suez (OTC: GDFZY)
Current Dividend Yield: 4.68%
France

3. Enel (E)
Current Dividend Yield: 5.61%
Italy

4.RWE AG (OTC: RWEOY)
Current Dividend Yield: 6.33%
Germany

5.Iberdrola (OTC: IBDRY)
Current Dividend Yield: 5.51%
Spain

6. National Grid Plc (NGG)
Current Dividend Yield: 8.34%
UK

7. Scottish & Southern Energy (OTC: SSEZY)
Current Dividend Yield: 3.44%
UK

8.EDF (OTC: ECIFF)
Current Dividend Yield: 3.09%
France

9. Centrica (OTC: CPYYY)
Current Dividend Yield: 5.32%
UK

10. Fortum (OTC: FOJCY)
Current Dividend Yield: 5.48%
Finland

11. Veolia Environnement (VE)
Current Dividend Yield: 5.18%
France

12. International Power (OTC:IPRPY)
Current Dividend Yield: 4.10% *
UK

* Update: International Power owners set for £1.4bn payout

13.Energias de Portugal (OTC: EDPFY)
Current Dividend Yield: 5.83%
Portugal

14. SNAM Rete Gas SpA (OTC: SNMRY)
Current Dividend Yield: 4.87%

15.United Utilities (OTC: UUGRY)
Current Dividend Yield: 7.67%
UK

16. Terna
Italy

17. Suez Environment (OTC: SZEVY)
Current Dividend Yield: 4.17%
France

18.  Severn Trent (OTC: SVTRY)
Current Dividend Yield: 3.28%
UK

19. Red Electrica Espana (OTC: RDEIY)
Current Dividend Yield: 5.40%
Spain

20. Gas Natural SDG (OTC: GASNY)
Current Dividend Yield: 7.79%
Spain

Which is a Better Invesment – Germany or U.K.?

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The U.K. and Germany are two of the largest economies in Europe. In terms of investment returns, Germany is well ahead of the UK in the past five years as shown in the chart below:

MSCI-Germany-vs-UK-Returns

Source: MSCI Barra

The chart compares the performance of MSCI country index for Germany and the UK in dollar terms. British equities fell more than German equities during the financial crisis. Over the past five years, German stocks have performed better than British stocks. The 1-year and 5-year annual average returns are 4.25% and 5.28% for Germany compared to 7.69% and -2.28% for UK.

The iShares MSCI Germany Index Fund (EWG) tracks the  MSCI Germany Index.The fund has an asset base of $1.5B and financials account for 18% of the portfolio.Year-to-date the ETF is down 1.78%

The iShares MSCI United Kingdom Index Fund (EWU) tracks the  MSCI index for UK.The fund has an asset base of about $984M and financials account for 21% of the portfolio.The fund allocation for industrials is 5% compared to 15% in EWG. Year-to-date the fund is up 0.63%.