If dividend investors only look in the U.S. they could be missing out
In general, Dividend Aristocrats are the foundation for the
portfolios of most serious dividend growth investors. European Dividend
aristocrats are typically blue-chip stocks that have proven to reward
shareholders with rising dividends over a long period. While historic dividend
payment does not guarantee future distributions, it can help investors when
accessing the likelihood of a company continuing to reward shareholders.
How Do European Dividend Aristocrats Make The List?
Dividend aristocrats are defined differently in Europe and
the United States. Indeed, European companies qualify as dividend aristocrats
under the following conditions:
-Needs to be an S&P Europe 350 Index member
-Ten consecutive years of increasing dividends
-Possess a float-adjusted market capitalization of at least
US$ 3 billion
-Has a median daily trading volume of at least US$ 5 million
Ten years is much less than the 25 years required by
companies in the S&P 500. However, this is because European companies do
not value the dividend in the same manner as American companies. Typically,
European companies tend to have a more conservative approach to rewarding
shareholders with dividends.
Another significant difference is that European companies
like to have an FCF payout ratio of between 40% and 60%. Actually, it is a rare
event that you would see a European company with an FCF payout ratio above 70%.
Also, from a dividend longevity point of view, this conservative approach might
improve the sustainability of the dividend. Still, it also means that it will
more than likely cut the dividend when a company hits a slight downturn.
As an investor, this also means that you see a European
company with a long track record of paying dividends. And, you can be almost
certain that revenue and FCF are also growing.
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