European equities and the related ETFs, though lagging the S&P 500, have been solid performers this year. Investors looking to wager on that trend continuing in 2020 while reducing their volatility profiles should consider dividend strategies, such as the ProShares MSCI Europe Dividend Growers ETF (CBOE: EUDV).
EUDV tracks the performance of the MSCI Europe Dividend Masters Index, which consists of at least 25 European companies that have consistently increased their dividends for at least 10 consecutive years.
In Europe, rising earnings growth could bolster dividend growth in 2020. Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses.
Europe’s equities also look more attractive, with valuations of European and U.S. equities exhibiting their widest divergence since the end of 2016 on certain measures. According to FactSet data, the Stoxx Europe 600 was trading at 14 times forecast earnings, compared to the S&P 500’s 17 times, which represents a wider gap than its long-term average over the past decade.
EUDV, which holds 56 stocks, has a price-to-book ratio of 2.53x and a distribution yield of 2.26%, implying ample room for dividend growth, according to ProShares data. British and French stocks combine for over 52% of the fund’s weight.
Switzerland, a dependable dividend growth market in its own right, represents nearly 11% of EUDV’s geographic, an exposure that includes pharmaceuticals giant Novartis.
“The numbers above reflect the success of Novartis’ current pharmaceutical portfolio, but pharma stocks will always be valued on the potential of their treatment pipelines,” according to Motley Fool. “The good news is that Novartis is making strong progress on the research-and-development front — it had five new molecular entities that could become blockbuster drugs approved in 2019 — and at its recent R&D day event management highlighted the fact that it has 21 phase III program initiations scheduled for the next couple of years, and more than 40 planned filings over the next five years — around half of which are for new indications for existing drugs.”
EUDV is up 4.80% this month.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.