The stock markets have been volatile over the past few weeks. The Russian invasion of Ukraine has shaken-up Western security and defense policy and ended decades of trade relations between the West and Russia almost overnight. But the truth is also that Russia’s share of the world market and world trade is relatively small, in the low single digits, so we can already see the first signs of a “back to normal” on the international stock exchanges. This, at least, could explain the recent “rally” in leading indices.
However, with stock market normality, investors are now once again focusing on the possible turnaround in interest rates. Inflation, driven by high energy prices, is putting central banks on the spot, and the continuously rising yields on bonds anticipate hefty interest rate hikes. As a result, more and more market observers predict more than four rate hikes by the U.S. Fed in 2022. Some Fed officials are even projecting six hikes this year. These hikes will have a signal effect on other central banks, especially the ECB. So it’s high time to check your portfolio for risks. Particularly relaxed here are holders of dividend-paying companies that increase their profits and distributions to shareholders every year. That’s why we’re presenting 20 dividend stocks whose current dividend yields have risen significantly over the last 12 months. Which stocks are bargains, and which stocks should you steer clear of, despite the attractive dividend yield?
Some explanations on how we scan the dividend yields: The selection of dividend stocks at a discount is based on the algorithms of the Dividend Turbo, which continuously compares the current dividend yield with the historical dividend yield for hundreds of the world’s most popular dividend stocks. Since a yield below 2 percent is uninteresting for many dividend investors, the selection only considers stocks with at least 2 percent dividend yield. In addition, only reliable dividend payers should be listed, which we measure by dividend stability of at least 0.8. Stability is a ratio that measures the reliability of the dividend and ranges from -1 (consistently lower dividend every year) to +1 (consistently higher dividend every year). Furthermore, we only considered stocks with a dividend history of at least five years without cuts. Since the list includes some stocks that we have already discussed in previous months, we decided to expand the list from 15 to 20 companies. You will now find the top 20 stocks whose dividend yields meet these criteria in the table below. The delta column on the far right shows you how many percent the current dividend yield is above the historical average.
|ISIN||Name||Div.%||Stability||Δ Div. 12 months|
|US74144T1088||T. Rowe Price Group||5.07%||0.96||1.71%|
|US5246601075||Leggett & Platt||4.54%||0.99||0.92%|
|CNE1000003X6||Ping An Insurance||4.99%||0.95||0.92%|
|US19239V3024||Cogent Communications Holdings||5.04%||1||0.81%|
Despite the current crises and conflict hotspots, significant discounts to average yields are still waiting to be seen. One reason for this is probably the current rally, which is pushing the yields that have risen back down again. Nevertheless, the list contains some interesting stocks. In this article, we will take a look at two European stocks and one Canadian stock. Denmark’s Carlsberg, France’s Rubis, and the stocks of Canada’s Magna International are attracting investors with what are, in some cases, historically high dividend yields and favorable valuations. To ensure that the high dividend yields don’t put you off the scent, we separate the wheat from the chaff for you. As always, we answer the following questions with our Dividend Screener:
Does the company have a promising business model?
Is the dividend secure?
Is the stock overvalued or undervalued?
Let’s go! 🏳
With a stock market value of less than EUR 16 billion, the Danish brewery Carlsberg, which holds brands such as Carlsberg, Ringnes, Falcon, Baltika, Beerlao, and Chonqing, is not a heavyweight compared to Anheuser-Busch. Nevertheless, the Danes have easily beaten the stock price performance of their much larger competitor from Belgium in recent times. While Anheuser-Busch has been steadily going downhill since 2015, Carlsberg’s stock price in its home currency climbed from DKK 477 in 2015 to DKK 1170 in the meantime. Unlike its Belgian counterpart, Carlsberg even kept its dividend stable despite the Covid 19 turmoil. However, the stock has corrected sharply and is trading 30 percent below its all-time high from 2021. Time to get in?
Carlsberg is a classic brewing company that produces and markets beer, craft, specialty beer, and non-alcoholic beer. However, the growth momentum since the mid-1990s has noticeably lost momentum over the last ten years. Like the rest of the industry, Carlsberg is struggling with changing consumer needs, preferring healthier alternatives or higher-quality alcoholic beverages. And the pandemic did not leave Carlsberg entirely unscathed, as you can see from the dip in sales below.
Despite the challenging environment and slowing growth momentum, Carlsberg has increased earnings per share (“EPS”). While the company achieved an EPS of DKK 19.53 in 2007, this is likely to be around DKK 48 in fiscal 2022. This is a respectable achievement for a company in a challenging market with weak growth dynamics.
Market participants appreciated this good EPS development and let the stock rise strongly until the abrupt correction in February 2022. The reason for the sell-off is the Ukraine war and the sanctions imposed on Russia, as Carlsberg most recently generated DKK 6.5 billion, or almost 10 percent, of its total sales of DKK 66 billion in Russia.
After some initial hesitation, Carlsberg’s management decided to stop investments in Russia and exports to Russian affiliates at the beginning of March. It is, therefore, quite possible that a large part of the sales and profits generated in Russia will be lost for the foreseeable future – a significant blow for a company with such extensive exposure to Russia. Therefore, it is questionable to what extent the analysts’ forecasts for sales and profits are still sustainable. I rule out that the other regions will suddenly show growth figures that can compensate for the loss of the Russian business. Beer volume sales are declining too much, and competition between breweries is too great. The latter competitive pressure, in particular, carries the risk that Carlsberg will find it difficult to pass on the exploding raw material costs to consumers so that margins could also come under pressure in the medium term.
The inevitable question is whether Carlsberg’s dividend is still safe if the Russian business is eliminated. The company’s general dividend policy is to pay out 50 percent of the previous year’s adjusted profit. In fact, Carlsberg has not lowered its annual payout for 13 years and has increased it annually for six years. In fact, the average increase over the last five years is a remarkable 23 percent. For fiscal 2021, the company has increased the dividend from DKK 22 to DKKK 24, which is still a 9 percent increase. However, the payment was made on March 17, so shareholders will not be able to enjoy a Carlsberg dividend again until next year. However, it is uncertain whether shareholders can expect another increase. With a payout ratio of 50 percent on last year’s profit, Carlsberg has already reached the upper limit of its payout policy. Therefore, a further increase would have to be reflected in a corresponding profit development. Given the business developments in Russia, this is not a foregone conclusion. Nevertheless, the dividend yield is historically high at almost 3 percent, even if the payout remains the same.
The Carlsberg stock has been somewhat moderately valued for a consumer goods company over the past 20 years, with an average P/E ratio of 18.5. It is interesting to note that investors have been willing to accept prices above historical valuation levels over the past ten years, despite declining growth momentum. Currently, the stock is valued at an adjusted P/E of 16.8. Measured against the historical multiples and the adjusted earnings expected to date for 2024, the upside potential is almost 50 percent, which, including dividends, still corresponds to an annual performance of 15 percent.
At first glance, Carlsberg seems like a bargain with a historically high dividend yield and a moderate valuation. However, interested investors should not forget that the market is currently pricing in a lot of uncertainty surrounding the war in Ukraine and the sanctions against Russia. This can be a good buying opportunity, but the concrete consequences for sales and earnings are not yet foreseeable, so there is a risk of reaching into a falling knife. As Carlsberg is also operating in a relatively challenging market environment, there is no need for haste, in my view, which is why the stock is only a case for the watch list for me.
With a historical dividend yield above 6 percent and a single-digit adjusted P/E ratio, the stock of oil and chemical logistics company Rubis SCA are an absolute bargain on paper. Nevertheless, it has not been a winning stock in recent years. The stock price has lost a whopping 55 percent since its all-time high in 2018.
Rubis’ business model is based on the storage and distribution of oil and chemical products such as fertilizers. The French company’s primary focus is on the Caribbean and Africa. Thus, the company has extensive exposure to developing and emerging countries. The poor stock price performance is surprising, as Rubis has recorded decent growth over the long term. Overall, sales have risen since 2009 from EUR 951 million to EUR 4.5 billion in 2021, and analysts predict sales of EUR 5 billion in 2023.
Rubis recently acquired a majority stake in the French energy company Photosol. Photosol generates electricity through solar power plants and is one of France’s largest independent renewable energy developers. With Photosol, Rubis will create a new business unit dedicated to renewable energy development and expects the new business unit to grow 40 percent annually over the 2022-2025 period. But the fantasy goes even further. With a strong presence in Africa, the company already has a foot in the sunny continent. It can use the Photosol acquisition to expand its renewable energy generation business (see this presentation for more information on the roadmap).
Financially, Rubis can afford the EUR 376 million acquisition of Photosol. The debt ratio, as measured by interest-bearing debt, is admittedly over 30 percent, higher than Shell (22 percent), Exxon (9 percent), and Chevron (12 percent). However, Rubis’ interest-bearing debt of EUR 1.5 billion is almost offset by cash and cash equivalents of EUR 1 billion. Overall, the company is well equipped for the future in balance sheet terms.
In addition, Photosol is profitable. Already in this fiscal year, the transaction is expected to contribute EUR 25 million to EBITDA (2021: EUR 532 million). For the current fiscal year, analysts expect total EPS of EUR 2.86, which corresponds to a doubling compared to 2014.
Rubis has increased its dividend every year for the past 16 years and is committed to a shareholder-friendly payout policy. Each year, the company aims to distribute approximately 60 percent of earnings per share to shareholders. In exceptional years, the company is willing to increase the ratio (to 66 percent in 2020, for example). For the past fiscal year, the dividend is expected to be EUR 1.93, increasing 13 cents/slightly below 9 percent over the previous year. The increase is above average, as in the last five years, management has increased the dividend by an average of only 7 percent. The dividend payout day and ex-dividend date are usually in July, so investors will still get the dividend yield of 7 percent this year, which is above the historical long-term corridors.
Rubis was comparatively highly valued for an energy company, with a historical P/E of 16, which is above the historical multiples of its peers Shell (11), Exxon (P/E 15), and Chevron (13). However, with the current adjusted P/E ratio of 10, Rubis trades below this average and deems undervalued. Based on the expected EPS for 2024, this results in a considerable upside potential of 34 percent per year, including dividends.
At the current valuation level, Rubis appears attractively valued. In addition to the high dividend yield and the unusual business focus in developing and emerging markets, the fantasy around renewable energy and its opportunities in Africa is enticing. Nevertheless, neither valuation nor the high dividend has kept the stock from falling further in recent years. Likewise, investors benefit from the same developments and get diversification on top by investing in an emerging market ETF or a (green) energy ETF. In short, the solid but not outstanding growth story for the future is not enough for me to make a single bet on Rubis.
Magna International also saw a sharp drop in its stock price of almost 40 percent. After the Corona low, the stock price temporarily rose from USD 26 to USD 100. With the recent correction, the stock is trading at an attractive valuation level with a comparatively high dividend, making it attractive again for bargain hunters.
As an automotive supplier, Magna International sells car body systems, chassis systems, powertrains, electronic systems, and other automotive parts such as mirrors and lighting (for an overview of the individual business groups, click here). The main chunk of sales in 2020 came from the following six car manufacturers.
I like that Magna International is not adversely affected by the mobility transition toward more electric cars. Many traditional automotive suppliers have problems with e-mobility, as the electric engine requires fewer individual parts than the classic combustion engine. In the long term, the company’s growth story is intact. Sales grew from USD 10 billion in 1999 to USD 35 billion in 2022, but the cyclical nature of the business can be seen in the dips in sales. Investors must therefore expect cyclical sales declines in times of economic crisis, such as in 2008 and 2009 or 2020 and 2021. For 2022, however, analysts are bullish that Magna International will be able to catch up with its pre-Corona sales.
As is typical for the industry, Magna International’s margins are relatively low. However, analysts expect a significant improvement in operating and net margins in the coming years. The operating margin is expected to rise from 5.3 percent to 8.3 percent.
EPS are expected to develop in line with the margins. This is particularly interesting for dividend investors, as the payouts are distributed out of the company’s profit. According to analysts, Magna International’s EPS are expected to more than double by 2025 compared to the last fiscal year.
However, it is unclear whether these expectations are realistic considering the current supply chain problems and the war in Ukraine. At least Magna International has no factories in Ukraine. In 2020, Magna International also generated only USD 256 million in Russia out of total sales of USD 32 billion. The withdrawal from the Russian market and the Ukraine war will affect the company less directly than Carlsberg, for example. Investors should nevertheless bear in mind that supply bottlenecks exist in many areas of the automotive industry. If production lines come to a standstill due to a lack of chips or cables manufactured in Ukraine, demand for car bodies and other automotive parts automatically falls. Therefore, we cannot rule out that Magna International will not meet the high expectations of analysts and that the market is already pricing in this development.
Magna International has increased quarterly dividends every year for 12 years. Average dividend growth has been a solid 11.6 percent over the past five years. The company recently raised its quarterly dividend from USD 0.43 to USD 0.45, an increase of 4.7 percent and correspondingly below the multi-year average. With the recent stock price decline, the dividend yield is 2.7 percent and above the long-term average range.
However, investors should always consider the cyclical nature of the business. Reductions or cancellations of the dividend are entirely possible in times of crisis at Magna International. Fortunately, there are currently no immediate signs of such a cut. The current payout ratios of 35 percent on earnings and 45 percent on free cash flow even leave room for future increases.
Magan International’s stock price plunge was overdue from a technical perspective and has brought the stock back close to its historical valuation. With an adjusted P/E ratio of 12.3, the stock is no longer too expensive. Measured against the historical multiples and the expected adjusted earnings for 2025, the upside potential is almost 100 percent(!), including dividends, corresponding to an annual performance of more than 20 percent.
Magna International is an interesting company whose stock is now trading in a fair range again. Sure, the stock’s short-term upside potential is exciting, but only as long as the business can meet analysts’ expectations. Conversely, the company remains cyclical and has cut its dividend during the financial crisis. Despite a slight dividend discount, I am still not convinced that the stock has a unique selling proposition.
Comparing all three stocks discussed here, Rubis and Magna International are the most convincing. Both stocks are suitable for courageous investors as individual bets on different scenarios (expansion of renewable energies at Rubis and profit explosion at Magna International) with relatively safe dividend distributions. However, I don’t see any of these stocks as a must-buy, as I miss the unique selling points.
If none of these stocks appeals to you either, or if you are looking for more solid dividend payers, we offer you many other quality stocks with dynamic earnings growth. The DividendStocks.Cash helps you answer all fundamental questions for more than 1,600 dividend stocks worldwide.
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