by Jason Jenkins, Investment U Research
Friday, September 14, 2012
by Jason Jenkins, Investment U Research
Time to Look for Opportunities
You should always be looking for opportunities where others are avoiding. It should be the contrarian in you. Every security in Europe isn’t bad just because Europe’s political theater is dysfunctional. Just like many money managers out there, you want to try to maintain a diversified global portfolio. And that being the case, there are a lot of beaten-down European stocks out there.
But, as always, you have to be smart. Some stocks have been knocked around because they deserve to be. But you can get a little hedge against volatility through looking for shares of cheap European companies that are going to give you a regular dividend. They are out there.
First Focus on Dividend-Paying Multi-Nationals
Last week, MarketWatch quoted Weyman Gong, a principal at Signature, a wealth management firm in Norfolk, Virginia: “This dividend-paying stock segment is the most stable in the market.” Gong has stated that he’s staying put with what’s in his portfolio now.
These are companies in Europe with a broad international influence. Some of his portfolio members listed in the United States are:
- British American Tobacco PLC (NYSE: BTI)
- Philip Morris International Inc. (NYSE: PM)
- Nestle SA (OTC: NSRGY.PK)
- Unilever PLC (NYSE: UL)
But Also Consider the Risks…
Julian Pendock, Chief Investment Officer at London-based Senhouse Capital, states, “Dividends in Europe are more attractive than elsewhere, but should be given higher levels of risk and uncertainty going forward because markets are all driven by politicians and central bankers. There are some excellent higher-yield companies around, but one has to be discerning about risk.”
Will James, a European-stock fund manager at Standard Life Investment based in Edinburgh, believes that the doom and gloom predictions are a bit over the top. He went on to say that, “It’s not as bad as the headlines suggest. You have companies across Europe that have very strong balance sheets and don’t have to go to the debt markets.”
James noted that many companies have posted meaningful dividend hikes and plan to continue dividend growth payout. They include such companies as:
- Oesterreichische Post AG (OTC: OERCF.PK), which handles the mail in Austria. Currently, it’s yielding 7%. James expects the dividend to grow about 5% every year.
- Eni SpA (NYSE: E) is an Italian multinational oil and gas company that Matt Carr has written about for Investment U before. It has already made the announcement that it will increase its dividend to keep in line with inflation. The last boost was about a 3.5% increase and it’s currently sporting a 6% dividend.
James also stated that it isn’t so bad to go after companies with lower yields if you follow an investing strategy kind of like Warren Buffett’s “moat” strategy.
He believes it’s worth the trade-off if it’s a strong franchise, the industry is difficult to enter, and the company possesses a virtual monopoly or control of a limited market. All this gives the company a steady cash flow.
The example he provided was Novo Nordisk A/S (NYSE:NVO). It’s a Denmark-based health care company that produces diabetes care equipment and medications. It also focuses on other areas, such as hemostasis management, growth hormone therapy and hormone replacement therapy.
The company has increased its dividend 40% in a year. And Novo Nordisk AS has been consistent with its dividend increases. The dividend has been increased yearly since its IPO 11 years ago.
James concluded by saying, “If I can get a 4% dividend yield from that company and it will be here in four years’ time, I’m going to get a fairly attractive total return.”
If you do your due diligence, I think you can find income bargains almost anywhere throughout Europe. Stay tuned as our experts share their most profitable findings…
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