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How Europe’s Dividend Giants Are Performing

Pfizer’s agreement with the US government has benefited large European pharmaceutical companies.

Collage mit einer Aktentasche, einem Zeitungsausschnitt über Dividendenaktien und grafischen Elementen.

Key Takeaways

  • Over the past month, the Morningstar Europe Dividend Yield Focus Index has underperformed the Morningstar Europe Index.
  • Of the 10 companies with the greatest weighting in the Morningstar Europe Dividend Yield Focus Index, pharmaceutical companies Roche and Novartis have performed the best over the past month.
  • British American Tobacco has been the worst performer.

Over the past month, the Morningstar Europe Dividend Yield Focus Index fell 1.88% in euros, compared to 0.62% for the Morningstar Europe Index. In the year to date, meanwhile, the strategy of investing in European companies with high dividend yields has paid off.

During this period, the dividend index rose 15.4% compared to 14.4% for the regional index. Over the last three and five years, the Morningstar Europe Index has clearly outperformed the Morningstar Dividend Focus Index, by around two percentage points annually in both periods.

What Is the Morningstar Europe Dividend Focus Index?

The much broader Morningstar Europe Index measures the performance of large-, mid- and small-cap stocks in developed and emerging markets in Europe, representing the top 97% of the investable universe by market capitalization. Meanwhile the Morningstar Europe Dividend Yield Focus Index is designed to provide exposure to stocks from the Morningstar Europe Large-Mid Cap Index with attractive dividend yields and strong financial quality. Constituents are weighted in proportion to the value of their dividend payments.

As is evident from the tables, the top 10 in both indices is very different. Hence the differences in returns that can occur.

There are also significant sectoral differences between the two indexes. The following chart shows that the consumer defensive sector has the greatest weighting in the Morningstar Europe Dividend Yield Focus Index, with 26.1%, while it only accounts for 9.3% of the Morningstar Europe index.

The dividend index is also a much more concentrated index. It has 100 holdings compared to more than 1,300 in the Morningstar Europe Index. The percentage of large companies is slightly higher in the case of the dividend index, at 82% versus 78%, but it skews towards the value segment. Obviously, the dividend yield of the Morningstar Europe Dividend Yield Focus Index, 4.1%, is higher than that of the Morningstar Europe Index at 3.2%.

How the 10 Largest European Dividend Stocks Performed Last Month

British American Tobacco BATS, the stock with the highest weight in the index, lost 7.2% in euros in the last month. The second most heavily weighted stock in the index, the Swiss pharmaceutical company Novartis NOVN, also posted a positive return of 7.2% as well as Roche ROG, which gained 9.8%.

The entire pharmaceutical sector benefited from the recent agreement between Pfizer PFE and the US administration which seeks to reduce drug costs for American patients. Pfizer will receive a three-year exemption from 100% tariffs on foreign pharmaceutical imports, provided it invests more in US manufacturing. This agreement has benefited European pharmaceutical companies in the short term, mainly by reducing uncertainty about tariffs and prices, which drove a significant rebound in their shares.

The biggest losses in the top 10 of the Europe Dividend Yield Focus Index were for British American Tobacco and Unilever ULVR, which fell 2.2%.

Key Morningstar Metrics for Top Dividend Stocks

British American Tobacco BATS

Analyst: Kristoffer Inton

Novartis NOVN

Analyst: Jay Lee

Roche ROG

Analyst: Karen Andersen, CFA

Zurich Insurance Group ZURN

Analyst: Henry Heathfield, CFA

Unilever ULVR

Analyst: Diana Radu, CFA

Sanofi SAN

Analyst: Jay Lee

Nestlé NESN

Analyst: Diana Radu, CFA

Deutsche Telekom DTE

Analyst: Javier Correonero

Lloyds Banking Group LLOY

Analyst: Niklas Kammer, CFA

Vinci DG

Analyst: Matthew Donen, CFA

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

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