Morningstar
Please select a location from the dropdown to view relevant share classes and investments. Your home market is currently
Don't see your home market? Change Edition

Europe’s Cheapest High-Quality Dividend Stocks

Combining quality filters with valuation brings up several stocks that are robust dividend opportunities in Europe.

Collage illustration featuring company building with imagery of stock whiskers and market performance in the background

There is one factor that retail investors often overlook when selecting high-yielding dividend stocks: valuation.

Dividend investors tend to focus on well known large-cap companies. These businesses typically have well-established operations, widely recognized brands, and long track records of paying dividends, all of which help reinforce investors’ confidence when building portfolios aimed at generating stable income. These companies generally occupy leading positions within their respective national stock market indexes.

Meanwhile, focusing exclusively on dividend yield can be a mistake. A company may offer an exceptionally high yield simply because the market has lost confidence in its business and heavily punished its share price. For this reason, investors should look beyond the dividend itself and carefully assess the company’s valuation, the maintainability of its earnings, its level of debt, and its ability to continue generating cash flow in the future. Successful dividend investing is not just about chasing attractive income streams, but also about buying high-quality companies at reasonable prices.

Introducing the Morningstar Europe Dividend Yield Focus Index

The question, of course, is how to better select dividend stocks. A good starting point is the Morningstar Europe Dividend Yield Focus Index, which tracks a select portfolio of high-quality European companies with high and durable dividend payouts.

Rather than collecting the highest dividend yields available, the index attempts to identify companies capable of maintaining and growing those dividends over time. This distinction is important because an unusually high yield can sometimes be a warning sign rather than an opportunity, reflecting a falling share price caused by deteriorating fundamentals or financial stress. By incorporating measures such as Economic Moat Ratings and Distance to Default scores, the index seeks to avoid so-called “dividend traps” and focuses instead on businesses with durable competitive advantages, resilient balance sheets, and stable cash flow generation.

The result is a concentrated portfolio of around 100 European dividend-paying companies that typically offers a significantly higher yield than the broader European equity market. Several of the index’s members are trading well below their Morningstar fair value estimates, making them undervalued.

These are the 10 most undervalued companies from the Morningstar Europe Dividend Yield Focus Index:

Coloplast COLO B

Debbie S. Wand, equity analyst for Morningstar, says: “We find policies surrounding shareholder returns highly appropriate. Management has outlined levels of cash it intends to hold for any opportunistic acquisitions and directs excess returns to shareholders through special dividends, on occasion, when the firm does not see any attractive investment opportunities for those funds. Additionally, while the firm does engage in share-repurchase programs on occasion, it typically limits its treasury shares to 10% of its share capital. This has helped limit dilution in the past when shares have traded above our intrinsic value.”

Croda International CRDA

Diana Radu, equity analyst for Morningstar, says: “Shareholder distributions are appropriate. Company policy is to pay a regular dividend to shareholders representing 40%-50% of adjusted earnings over the business cycle. In practice, this has resulted in a dividend that has been raised annually for nearly 30 years. Once high-potential projects are funded, Croda is prepared to return excess capital to shareholders, historically through special dividends. However, given the volume of investment opportunities in recent years, the last special dividend was paid in 2015. We expect M&A opportunities will be fewer in the near term, which should allow Croda to return excess cash to shareholders.”

DSM-Firmenich DSFIR

Diana Radu, equity analyst for Morningstar, says: “We view shareholder distributions as appropriate. DSM-Firmenich should generate sufficient cash flows to maintain healthy reinvestment in its business and support dividend growth. Management is targeting a dividend payout ratio of 40%-60%, which we view as appropriate.”

Reckitt Benckiser Group RKT

Diana Radu, equity analyst for Morningstar, says: “Reckitt’s approach to shareholder distributions is appropriate. Reckitt has a progressive dividend policy and has increased dividends by 5% per year over the last two years, which we expect will continue over the midterm. Since October 2023, the company launched two share buyback programs for the amount of GBP 1 billion each. The latest buyback program with around GBP 1 billion amount was announced in early 2026. We believe these decisions were timely given the pronounced share price weakness experienced in recent years.”

Henkel HEN3

Diana Radu, equity analyst for Morningstar, says: “Henkel’s approach to shareholder distribution is appropriate. The main mechanism for returning capital to shareholders has been through dividends. Henkel’s payout ratio to preferred shareholders of 40% is middle of the road among its large-cap peer group. Henkel’s first-ever share-buyback program was carried out in 2022-23 for an amount of EUR 1 billion. A second program was announced in the first half of 2025 for the same amount and was expected to be completed in the first quarter of 2026. We think the timing for both programs was appropriate, carried out during periods when we regarded the stock as undervalued.”

Partners Group PGHN

Johann Scholtz, equity analyst for Morningstar, says: “We like that the firm’s founders receive the bulk of their rewards in dividends and share price appreciation, together with other shareholders. Once again, this is a sharp contrast to the practice at many of its peers, where the founders, even though not active in dealmaking anymore, receive a large share of carried interest, appropriating a larger share of profits than what their shareholding would entitle them to.”

Deutsche Telekom DTE

Javier Correonero, equity analyst for Morningstar, says: “Deutsche Telekom’s dividend for fiscal 2025 is EUR 1.00, an 11% increase versus 2024. We expect a dividend above EUR 1.10 in 2026, with low-teens growth thereafter. DT’s dividend yield is lower than that of other peers, but there’s no risk of dividend cuts while the firm has room to grow dividends at a low-teens rate supported by EBITDA and free cash flow generation. Overall, we prefer telecommunication companies with lower, but maintainable dividend yields like DT.”

Flughafen Zurich FHZN

Jack Fletcher-Price, equity analyst for Morningstar, says: “Profits are returned to shareholders through dividends. Flughafen Zurich distributes 50% of its net income via an annual ordinary dividend and an additional 25% as a special dividend, provided its net debt/EBITDA is below 2.5 times.”

Nexi NEXI

Niklas Kammer, equity analyst for Morningstar, says: “We assign Nexi a Morningstar Capital Allocation Rating of Standard. The rating reflects our view of sound balance sheet, fair investments, and appropriate shareholder distributions. We think investments are most likely to be the key driver of total shareholder value. The balance sheet is sound on a forward-looking basis. We have a balanced view of the impact of investments on shareholder value. We think its deployment of cash via share buybacks is prudent.”

Spirax Group SPX

Matthew Donen, equity analyst for Morningstar, says: “Debt levels are conservative and comfortably managed despite increased borrowings since 2016 to fund acquisitions. Dividend distributions have also been well-balanced with business needs. Special dividends have also been paid in the past.”

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

© Copyright 2026 Morningstar, Inc. All rights reserved.