European companies have more cash than in recent history. Companies from the Stoxx 600 index have 1.5 trillion euros in cash on their balance sheets. According to Goldman Sachs, this is 25% more than before the pandemic.
Income from free cash flow is around 6% in Europe, which is about one percentage point lower than in the United States, the bank said. According to Goldman, the top-performing sectors include automakers, commodity producers and financials. The Goldmans prefer the last two named due to their claimed exchange for shares.
The balance sheets of companies in Europe are generally particularly strong. the level of certain debt and EBITDA (earnings before taxes, depreciation and amortization) is close to a historical minimum, the bank stated in a comment dated April 23. And the difference in dividend income between Europe and the US is greater than it has ever been, which is why Europe is more attractive to them, according to Goldman Sachs.
In other words, Europe has always looked cheaper in absolute and relative terms. We believe that dividends can grow further in Europe given that payout ratios are below historical averages and investment rates are still exceptional, the bank said, noting that European dividends will grow by around 3% in 2024 and around 3% in 2025 by 4%.
According to Goldman, there is now such a good mix of value stocks, especially in banks and energy. The MSCI Europe Value index offers a dividend yield of 4.8%, which is 2.8 times that of the MSCI Europe Growth index.
The bank added that the volatility of rates now indicates that value stocks should rise in line with their performance. In this environment, we think that investors should focus on strategies of stable debt, because debt is likely to become an important driving force of income, the bank said.
Here are selected stocks with high dividend yields that Goldman Sachs tracks. They are companies from the Stoxx Europe 600 index with the highest 12-month forward dividend income in each sector. The bank emphasized that even in this list there are companies with the highest sustainable dividend incomes.
| Stocks | Dividend income for 12 months | Full-year average dividend yield | Payment ratio for five 12 months |
| BNP Paribas | 7.2 | 6.0 | 50.9 |
| Caixabank | 8.7 | 3.4 | 61.5 |
| Mercedes-Benz Group | 6.8 | 5.6 | 42.1 |
| British American Tobacco | 10.5 | 7.8 | 65.5 |
| Telenor | 7.7 | 7.1 | 116.8 |
| Enel | 7.7 | 5.3 | 69.0 |
| Credit Agricole | 7.0 | 7.4 | 52.9 |
Source: CNBC
Tags: Goldman Sachs selected stocks Europe sustainable dividend incomes
