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Argonaut's Russ: my top six stocks to play the European dividend boom
by James Phillipps on Nov 23, 2012 at 07:00
Europe is paying the highest dividend yields of all developed markets despite the macro gloom and Argonaut European Income fund manager Olly Russ is continuing to find plenty of attractive opportunities. Here are his favourites.
‘Ziggo was only listed earlier this year and so perhaps isn’t yet as well known as it might be. It is a Dutch cable company, which is an exciting area right now – as opposed to telecom incumbents, which are facing all sorts of competitive pressures. ‘A near rival in Belgium, Telenet, has just seen a bid offer from its major shareholder. While a takeover here might be a long shot, debt covenants falling away in the near future should allow a sharp uplift in dividend payments.’
‘Norway holds a number of attractions for investors – it’s not even in the EU, never mind the eurozone – and has a petrodollar economy in budgetary surplus. In addition, it has a nice line in oil drilling expertise. ‘Seadrill has one of the most advanced deep-water rig fleets in the world, and passes its long-term cash flows straight back to shareholders. Demand is high as oil gets harder to find, while a yield of nearly 8.5% looks tempting.’
‘Another company that has strongly outperformed, despite being located in the periphery. Better known as Zara in the UK, this Spanish clothing retailer keeps beating estimates, as its worldwide footprint drives growth. Not noted as a dividend stock due to its punchy valuation, it nonetheless has excellent scope to grow its payout. The dividend has been growing nicely over the past few years, and we have had three special dividends in that time. Crucially, though, it has net cash on the balance sheet – Citigroup estimates ¤4.3 billion or 7% of market capitalisation by year-end – which shareholders will receive one day.’
‘Many banks have had their dividends cut or cancelled in the eurozone but most of the Nordic banking sector is in rude health. ‘Swedbank has recovered from the credit crunch quite nicely, helped by the resilience of the Swedish economy. It is estimated to pay nearly six Swedish krona in dividends next year, producing a yield of nearly 5%. Better still, unlike its eurozone counterparts, it is overcapitalised, which could lead to even better shareholder remuneration in the future.’
‘Swiss insurance giant Zurich also sits outside the eurozone and the EU. Yielding more than 7% in Swiss francs at current levels, this well diversified insurer brings handsome returns for shareholders. Its Farmers US insurance business helps diversify group risk, while insurers as a group generally perform well in rising bond yield environments if you think global bonds have bottomed.’
‘Terna is the Italian national grid. A typical income stock, this is notionally a safe and boring utility. Even the management reckon it’s a dull company, and that’s the way they like it. With a highly regulated asset base, it isn’t easy for brokers to weave an exciting narrative around this one but it has a great track record of returning every penny it can to shareholders. ‘Despite having beaten the total return of the MSCI Europe ex-UK index by more than 70% over the last five years, it still boasts a dividend of more than 7%. Beware potential windfall taxes, though.’
In the three years to the end of October Russ' Argonaut European Income fund has returned 3.1% versus a 7.15% gain in the MSCI European excluding UK index TR USD.