Since the start of the summer the stock markets have been weighed down by the uncertainty surrounding global economic growth and fears that the European debt problem will have a wider impact. The MSCI Europe has already lost almost 17 % of its value this year and investors are at their wits’ end. And yet the current market circumstances offer some attractive opportunities for long-term investors.
In practical terms, we are thinking here of a range of dividend stocks that have become attractive again owing to the correction and often offer a generous dividend return. As far as we are concerned, dividend stocks are an essential element in any diversified portfolio. It is, after all, worth noting that no less than 70% of the return on stocks since 1970 can be attributed to dividends paid out. What is more, at the moment the average dividend return on stocks is higher than the average interest rate on corporate bonds.
Initially we selected a number of stocks with a robust dividend return and a reliable track record in various market circumstances. Our first ‘crisis-resistant’ favourite is the Roche stock. The Swiss company produces pharmaceutical products and diagnostic solutions. Roche has an attractive pipeline that is gradually beginning to yield fruit and the news flow over the coming months is expected to be very convincing. All the clinical research results released so far in 2011 have been positive. The company is listed at nine times the expected profit in 2012, while it continues to record two-figure profit growth and gives a dividend return of almost 5 %.
What is more, at the moment the average dividend return on stocks is higher than the average interest rate on corporate bonds.
Vodafone too, is a defensive stock that usually stands up fairly well to turmoil on the markets. The company generates a strong cash flow and this enables it to pay dividends and carry out takeovers in order to create growth in both developed and growth countries without difficulty. The stock is attractively valued at a price/profit ratio of approximately 10 and pays a gross dividend of around 6 %.
Another telecommunications player with an excellent dividend return is France Telecom. At the current price, the dividend return has risen to no less than 12%. In recent months investors had some doubts about the sustainability of the France Telecom dividend, but these doubts have now faded away. During the summer the company announced that the current dividend is certain to be maintained until 2012. An even more interesting alternative, without double dividend tax, is Belgacom. At the current price Belgacom is expected to pay a gross dividend of more than 9 %. The assumption is that the company will keep this dividend stable. Moreover, there is a chance that the Belgian government is prepared to sell its holding in the telecommunications player, which may yield an additional premium for investors.
In addition to our crisis-resistant selection, we have also taken a close look at the nuclear energy stocks that have been punished. In the months after the natural disaster and possible nuclear disaster in Japan, these companies suffered badly under the political pressure to ban nuclear energy. The German energy groupRWE is one of these. The company was forced to admit a fall in profits of almost 40% for the first six months of the year. RWE has, after all, set aside additional funds to cover the closure of the German nuclear power stations by 2022. Even after the poor profit figures, the stock is listed at just seven times the expected profit for 2011 and pays a dividend return of no less than 9%. Long-term investors who have the patience to wait for the price to recover can benefit in the meantime from an excellent dividend
Its German companion in the sector E.On is also an attractive proposal. Since early 2010 the stock has lost more than 45 % of its value, which means that most of the bad news is already included in the price. What is more, in the coming years the company will be able to benefit from the proposed cost savings. The valuation is very attractive at an expected price/profit ratio of just 8 and at the current price the stock offers a dividend return of almost 9 %.
