10 European Dividend Aristocrats to Diversify Your Portfolio

This article originally appeared on The Financially Independent Millennial and was republished with permission.

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. Historic dividend payment does not guarantee future distributions. But, 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.

Top 10 European Dividend Aristocrats

The following 15 companies qualify as European dividend aristocrats and are among the most dependable stocks for reliable dividends. For simplicity, I’ve offered the stocks and ADR’s listed on American exchanges, i.e. NYSE, Nasdaq, OTC.

1. L’Oreal SA (OTCMKTS:LRLCY)

L’Oréal SA. is one of the world’s largest cosmetic companies and is better known as the company behind personal healthcare and grooming brands such as Maybelline, Urban Decay, Diesel, Vichy, and La Roche-Posay.

The company generated €28 billion in revenue within four business divisions, Consumer Products (41.8% of sales), L’Oréal Luxe (36.4% of sales), Professional Products (11.1% of sales), and Active Cosmetics (10.8% of sales).

E-commerce sales have seen substantial growth during the pandemic, which helped offset over 50% of the losses caused by brick and mortar shops being closed. Further, L’Oréal expects this growth to continue post-pandemic and has predicted that 50% of revenue will come online by 2023.

L’Oréal is an excellent example of a European company with a strong brand. Indeed, this European Dividend Aristocrat prioritizes a healthy, growing dividend as they have not cut their dividend in 32 years. Also, the company also offers a 10% extra dividend for registered investors who hold their shares for at least four years.

Current Dividend Yield 0.80%

2. Enagas SA (OTCMKTS:ENGGY)

For investors looking for international exposure, Enagas considers partnership agreements with leading firms such as Tallgrass Energy in the U.S. to help them grow internationally. Also, the company has a significant stake in the Trans Adriatic Pipeline (TAP), which carries natural gas supplies to Europe from Azerbaijan.

Enagas deserves attention from any investor serious about boosting their earning potential through dividends. The company has consistently approved higher yielding dividends for its stockholders. Further, the company’s forward dividend is currently €1.68, which represents a potential 8.7% yield.

This European Dividend Aristocrat has paid a Bi-annual dividend since 2003. It’s rare for a European company to commit to growing its dividend. However, due to its predictable nature, it has committed to maintaining a sustainable dividend of €1.74 by 2026.

Current Dividend Yield 5.6%

3. Nestle SA (OTCMKTS:NSRGY)

Nestle, headquartered in Vevey, Vaud, Switzerland, is one of the world’s largest food and beverage companies. Also, they own more than 2,000 brands, including Kit Kat, Vittel, Nesquik, Nescafe coffee, and Häagen-Dazs ice cream. Over 29 of Nestle products, or brands, have grossed over 1 billion CHF.

In 2020, Nestle generated CHF 84.3 billion in sales across seven business segments, including powered and liquid beverages, nutrition and health science, pet care, prepared dishes, milk products, confectionery, and water. The company can achieve future organic growth by further investment in higher-growth categories such as coffee, nutrition, and Nestlé Health Sciences.

It’s encouraging to see that both earnings and cash flow cover Nestlé’s dividend. The company has distributed a dividend to shareholders since 1959. It has increased it for the past 25 years, including a 1.8% increase to 2.75 CHF for 2020.

This European Dividend Aristocrat remains an attractive investment opportunity. This is mainly due to its diversified and robust portfolio of brands and its commitment to rewarding shareholders.

Current Dividend Yield 1.69%

4. Unilever (NYSE:UL)

Unilever plc is a consumer staples conglomerate that produces some of the most popular consumer goods globally. Headquartered in London, United Kingdom, Unilever is listed on the NYSE, London Stock Exchange, and Euronext Amsterdam. Moreover, the company has recently unified its corporate governance under Unilever Group, combining Unilever NV and Unilever PLC on 29th November 2020.

Unilever has more than 400 brands, including Vaseline, CIF, Domestos, Knorr, and Dove, found in over 190 distinct markets. Also, the company owns 14 of the top 50 consumer goods brands. Out of these brands, 13 do over 1 billion euros in annual sales.

This European Dividend Aristocrat has a strong dividend history and has paid a dividend since 1999. Further, it has committed to long-term value creation by driving earnings and cash flow growth with a growing dividend.

Current Dividend Yield 3.35%

5. Roche AG (RHHBY:OTCMKTS)

Roche is a research-based healthcare company with medicines in oncology, immunology, infectious diseases, and the central nervous system’s diseases. They’re also the world leader in in-vitro diagnostics and tissue-based cancer diagnostics and a frontrunner in diabetes management.

Headquartered in Switzerland, Roche has two distinct operating divisions; Pharmaceuticals and Diagnostics. This European Dividend Aristocrat combines both the pharmaceutical and diagnostic divisions to bring personalized healthcare treatment to each individual.

In 2020, the company reported revenues of approximately 58.3 Billion CHF. Further, 2018 also marked the 34th consecutive year that the firm increased its dividend, making it one of the few companies and true aristocrats with such a pedigree.

Current Dividend Yield 2.53%

6. Novartis (NYSE:NVS)

Novartis International AG, better known simply as Novartis, is the first pharmaceutical-focused company to make this list. The Swiss-based company is one of the industry leaders in mature drug manufacturing. It’s best known for best-selling pharmaceuticals Cosentyx (arthritis) and Entresto (heart failure).

In recent times, the company has been moving towards cutting-edge gene therapies. Zolgensma, which treats spinal muscular atrophy, saw strong growth in 2020 Q4 and is starting to have a meaningful impact on revenue, generating 0.9 billion in 2020.

Novartis has not experienced cash flow disruptions during 2020, generating 11.7 billion in free cash flow in 2020, which is more than enough to sustain the 7.0 billion annual dividend payment. Further, this European dividend aristocrat approved its 24th consecutive dividend increase, with a rise by 1.7% to 3.00 CHF per share for 2020.

Novartis’ current dividend yield is around 3.7% and is an excellent option for shareholders looking for a high dividend yield and a long history of a growing dividend.

Current Dividend Yield 3.63%

7. Ashtead (OTCMKTS:ASHTY)

Ashtead Group is a U.K.-based equipment rental company aiming to create value through the short-term rental of its equipment to customers for use in building projects, entertainment and facilities maintenance. Also, they are the most significant player in a competitive U.K. market, with only an 8% market share. However, investors looking for exposure to North America might find Ashtead attractive as the U.S. continues to be the company’s largest market. Further, this European Dividend Aristocrat prioritizes the rental market in the United States as it is seven times bigger than the U.K. rental Market. While Canada is a new market for the company, they predict this will be the fastest-growing market with revenue growth of up to 6% in 2021 and 2022

The company’s main growth driver remains organic investment, and Ashtead invested £453m in 18 bolt-on acquisitions in the U.S. and Canada.

Ashtead has a progressive dividend policy to increase the dividend when profits and cash generation increase and maintain the dividend when profits decline. Impressively, the company earns its European dividend aristocrat status by increasing its dividend for 16 years. And, given the size of the U.S. market and the predicted growth in the Canadian market, investors can expect Ashtead to continue increasing the dividend in the future.

Current Dividend Yield 0.63%

8. British American Tobacco PLC (NYSE:BTI)

British American Tobacco is one of the prominent tobacco companies globally, with operations in over 180 countries. Outside of the United States, brands such as Dunhill, Pall Mall, and Rothman’s drive cigarette sales. Indeed, the U.S. represents 40% of the global industry’s value where they own brands such as Newport and Camel through the acquisition of Reynolds American in 2017.

The global tobacco industry has declined in developed countries for some time. Moreover, analysts expect this trend to continue in 2021, with an estimated 3% volume decrease in the U.S. to help offset this decline. BAT is notable for its presence in emerging markets. Also, they also aim to accelerate revenue growth from its New Categories segment with non-combustible products such as vapor and THP.

In 2020, this European Dividend Aristocrat generated £7.3 billion in free cash flow. The FCF payout ratio was a little over 50% in 2020, which is in line with its dividend policy of paying out roughly 65%.

Since the start of the millennium, the company has a long-established history of dividend payments with a 5-year CAGR of 5.99%. And, while risks of regulation always persist, a high dividend yield of over 7%, strong cash flow generation, and a commitment to a 65% payout ratio are encouraging for serious income investors.

Current Dividend Yield 7.61%

9. Coloplast A/S (OTCMKTS:CLPBY)

Coloplast is a Danish medical device company and a worldwide leader in Ostomy and Continence Care. The company also holds a substantial market share in Wound & Skin Care and Interventional Urology.

Coloplast is aiming to build a consumer healthcare company of the future. Indeed, through Coloplast Care & Direct to Consumer, the company is now present in over 30 countries with a consumer setup. They have over two million customers in its database and direct distribution in five of its largest markets. Coloplast maintained service levels throughout the COVID-19 crisis.

60% of revenue comes from the European markets, 25% from other developed markets, and 15% from emerging markets. However, emerging markets saw organic growth of 8% in 2020 compared to 2% in Europe.

Under the company’s Strive25 strategy, the company aims for 7% organic growth and an EBIT margin above 30%. Interestingly, Coloplast has increased its dividend for 24 consecutive years, making it one of the longest European dividend aristocrats. The company has a dividend policy to distribute excess liquidity to the shareholders through dividends and share buy-backs. This means that they typically have a high payout ratio.

Current Dividend Yield 0.94%

10. Diageo (NYSE:DEO)

Founded in 1997, Diageo is a multinational alcoholic beverage company from the U.K. which employs over 27,000 people. The company is home to 23 of the world’s top alcoholic brands and 2 of the top 5 brands globally. The most popular brands are Johnnie Walker whisky, Smirnoff vodka, Baileys liqueur, Captain Morgan rum, Tanqueray gin, and Guinness. These six brands alone drive over £16 Billion in revenue or 40% of all Diageo’s revenue.

2020 turned out to be a tricky year for the company as lockdowns caused declines in organic net sales. However, tequila, Whiskey, and ready-to-drink options helped to offset some of the losses.

Diageo targets India and China to drive future growth. And it has also taken a step into the non-alcoholic world by acquiring a stake in Seedlip, the world’s first distilled non-alcoholic spirits brand.

2021 has proved to a better year for Diageo, with e-commerce sales increasing. A 2% hike in the interim dividend delighted investors continuing this European dividend aristocrats’ 12-year streak for growing dividends. The company has been distributing dividends since 1998, with the only dividend cut coming in 2008 by 5%.

With the company’s strong brand power, lockdowns easing, and the growing trend in e-commerce, Diageo could be an outstanding option for investors looking for a quality company.

Current Dividend Yield 2.81%

Final Thoughts

The European Dividend Aristocrats listed in this article are among the best that one can use to diversify a portfolio. As usual, we recommend investing with the advice of a financial or investment advisor. We’ve done our best to ensure accuracy as of April 23, 2021, all details including the data, tickers, dividend yields, come from Google Finance. However, this information should always be verified before making any purchase.