I know, we don’t necessarily have the best dividend growth culture in Europe, but it doesn’t mean that we don’t have good European dividend growth stocks. Especially if we talk about German dividend stocks!
The Noble 30 index which contains 30 European Dividend Aristocrats is an example of that.
Because if we zoom into that index then we can see that 5 German dividend stocks are represented in there. Studying those stocks has given me much more appreciation for investing in German stocks compared to the initial biases I had.
That’s why in today’s article I would like to share with you the 5 currently highest yielding German dividend stocks.
It doesn’t mean that these are buy recommendations or stocks that I would recommend in everyone’s portfolio. However, I firmly believe that it’s good for us as European dividend growth investors to keep an eye on what’s available in the market.
So let’s get started!
1. BASF SE
BASF (ETR:BAS | DE000BASF111) is one of the largest chemical producers in the world and it’s currently domiciled in Ludwigshafen, Germany. The company has a very rich history and 70 years ago it was once part of IG Farben, an infamous company. Other companies that were spun-off from that entity are Bayer, Agfa and Hoechst (which is currently part of Sanofi).
The company has a long dividend history, but it had to cut it by 15% during the great financial recession. The year after they quickly restored it again to resume low single digit dividend growth.
What I like about the company is their dividend policy:
“We have an ambitious dividend policy and offer our shareholders an attractive dividend yield. We aim to increase our per-share dividend each year.”
I don’t hear that often in Europe that a company wants to increase their dividend every single year. Usually it’s rather about paying a certain percentage of their annual profits, i.e. 40%.
I find it even more impressive, because BASF is in a cyclical business. This means that there will be years that their earnings numbers will look horrible, like last year.
But hey, the company has been managing it pretty well and they are fully aware of that. That’s why they maintain a healthy balance sheet which allows them to continue growing their dividends in difficult times.
So what about their dividend yield then?
BASF yields 5.14% and that’s why it’s currently the highest yielding German dividend stock in the entire DAX index. Their dividend / free cash flow payout ratio is 45% which gives it enough room to increase their dividends.
They have been increasing their dividends for 10 years and last year they decided to maintain their dividend on the same level. I’m OK with that if a company does this from time to time and especially if it has good reasons (i.e. pandemic).
I like this company a lot and I’ve increased my position in BASF not too long ago after reading the BASF earnings results.
Disclosure: I own BASF.
2. Allianz SE
Allianz ($ETR:ALV | ISIN: DE0008404005) is one of the largest insurance and financial services companies in the world. The company was founded in 1890 and it is headquartered in Munich, the south of Germany.
Like BASF, Allianz had its trouble to continue growing their dividends during the great financial recession in 2008. At that time, Allianz was right in the blast zone of the financial crisis and it was not wonder that they had to cut their dividend back then.
And to be honest, it pretty much aligns with their long-term dividend policy, because they aim to payout 50% of their net income. Even though they indicated to have an interest to keep the dividend at least at the same level paid in the previous year.
The future will tell us how well they are positioned to continue doing that. The pandemic has given some evidence for that, but it wasn’t a financial crisis which had put the whole system at risk.
Fast forward to today: Allianz yields 4.65% which I consider quite a juicy dividend. Their dividend to earnings payout ratio is around 46% based on their latest earnings.
As you can see in the picture below, their dividends have been growing for 12 years and during that time it almost tripled. This is an amazing dividend growth track record for such a behemoth of a company.
What is important to know though is that Allianz received a large legal claim for wrong-doing with their structured-alpha funds. As a result of that, the share price dropped 8% on a single day and I considered it to be a buying opportunity. I think that the company can handle it without too many problems.
Disclosure: I own Allianz.
3. Bayer AG
Bayer AG ($ETR:BAYN | ISIN: DE000BAY0017) is a German multinational pharmaceutical and life sciences company. It was founded by Friedrich Bayer in 1863 and it’s based in Leverkusen. Until today, Bayer is still best known for its Aspirin product and for trademarking the name Heroin in the beginning of the 20th century.
Most people that follow me know that I have a hate/love relationship with this company. I love their Pharma business, but I am still until today flabbergasted on why they acquired Monsanto.
I consider that to be the worst acquisition deal done by a European company in modern history. The RoundUp litigation cases are still not under control and management seems to execute very poorly on this situation.
All this trouble has also led the company to cut their dividend last year from 2.80 Euro per share to 2.00 Euro per share. This results in a current dividend yield of 4.4% which is still on the high-end and it has to be seen if the dividend is safe going forward.
In the end it all has to do with the settlement in the RoundUp cases. If they settle it around the current provisions Bayer has made, then this stock has tremendous upward potential and could double in share price within a single year.
That’s why I consider the company to be a value-play rather than a dividend growth stock at this moment in time.
Disclosure: I own Bayer.
4. E.ON SE
E.ON ($ETR:EOAN | ISIN:DE000ENAG999) is one of the larger Electric Utility companies in Europe. The company was created in 2000 after a merger between VEBA and VIAG and has seen multiple changes since then. One of them was the spinoff of Uniper SE in 2016 which also resulted in the dividend cut which can be observed in the picture below.
Having said that, their dividend history just looks horrible, but it doesn’t provide you the full picture. Spin-offs, asset swaps and such might actually have had a net positive return on total shareholder return, but I haven’t gone through the effort of doing the math.
All I can say now is that the company is quite pushy when it comes to the adoption of renewable energy. As an example, in 2019 E.ON switched all their British electricity customer entirely to renewable electricity. I like that a lot, because it is definitely going into the direction of where I expect us to be in the future.
But this is also why we need to look at their most recent dividend history to see what we can expect in the near distant future.
E.ON currently yields 4.3% and their dividend payout ratio is 36.1%. I find these dividend payout ratios unreliable, because their earnings and free cash flows fluctuated a lot in the last 5 years.
That’s why I don’t see E.ON as a dividend growth company.
If you want to invest in E.ON for the dividends, then I would recommend you to think about what the minimum dividend per share is that they can pay. Take that as your floor and verify if you feel comfortable owning the stock with such an accompanying yield.
Disclosure: I don’t own E.ON SE.
5. Munich RE
Munich Re ($ETR:MUV2 | ISIN: DE0008430026) is one of the largest reinsurance companies in the world. Carl von Thieme founded the company in 1880 and nowadays it is a true European Dividend Aristocrat.
It has grown it’s dividends since 1970 and this is very unique in Europe, because only Nestle and Unilever have a longer track record without dividend cuts.
The company currently yields 4.05% and has an EPS payout ratio of 52% which means that it has enough room to continue growing their dividend.
They also have a very attractive dividend policy although this is one of the higher dividend yields in the German DAX:
“In “normal” years, the dividend per share is to rise by ≥5% on average, similarly to the increase in earnings per share. In years with unusually high claims expenditure, it is expected that the dividend per share will at least remain the same“
Honestly, in my opinion Munich Re is a very conservatively managed company which is still growing it’s income year over year. This means that it’s one of the few sleep well at night (SWAN) stocks available in Europe right now.
Hence, I view Munich Re as the grandfather of all German dividend stocks.
Disclosure: I own Munich RE.
Summing it up
These are the 5 highest yielding German dividend stocks in the DAX right now.
I know that some people try to avoid German dividend stocks due to a 26% dividend withholding tax in case you don’t intend to reclaim it.
Sometimes I feel that’s penny-wise, but pound-foolish as a dividend investor.
Firstly, I think it’s better to consider the tax-adjusted dividend yield and in that case all these stocks yield at least 3% in dividends. There are not so many stocks out there with a similar quality and safety compared to for instance Munich Re.
Secondly, one day your dividends might be quite significant and in that case it definitely pays off to reclaim your dividend withholding taxes according to the treaty. An article on how to do this for German dividend stocks is upcoming in the fall of this year.
Thirdly, you would just miss out on some excellent German dividend stocks which I personally love to have in my portfolio. BASF, Allianz and Munich Re are definitely an example of those.
Having said that, I hope that you enjoyed this article and that it gave you some inspiration for the upcoming weeks.
For now, have a great weekend and see you next time again!
Yours Truly,
European Dividend Growth Investor.
