It’s been a busy earnings season to go through all the 2022 annual numbers and especially for all those European Dividend Aristocrats.
The good news is that many of them have been hiking their dividends in consistency with their history. Actually, some of them went out of their normal pattern and hiked their dividend much more than we’re used to. Just have a look at the following dividend hikes:
- Hermes International SCA | +62%
- L’Oréal SA | +25%
- Novo-Nordisk A/S | +19%
- Wolters Kluwer NV | +15%
- Assa Abloy AB | +14%
This is what I call compounding on FIRE!
Unfortunately, I own none of those European Dividend stocks directly in my dividend growth portfolio. Although, I do own a few fractional shares in all of them via my trading212 pie (register here and we both get a free share up to 100 Euro).
Having said that, those 5 are some of the highest-quality European dividend growth stocks and I intend to own several of them at the right price. Until then I will just have to practice my patience.
On the other hand, there are also several Noble 30 members that have disappointed me. As an example, Unilever, Henkel, and Philips all kept their dividends flat.
Generally, this should not come as a surprise if you follow these companies. They all have their own particular struggles and I hope they will figure them out during the year. Luckily though, they didn’t decide to cut the dividend and they respected their commitments to their shareholders.
However, we have also experienced two bad actors this year.
Castellum AB decided to withdraw their dividend entirely until the real estate sector and their finances improve again. This one really smells and in my opinion, it has more to do with the chaos in the board of directors and their new ownership.
Fresenius Medical Care decided to reduce its dividend by 17% because it started to strictly follow its policy to align dividend payments with earnings development. They never felt a need for it so far, but the result is 20+ years of dividend growth down the drain. I can imagine that the retail dividend growth investor feels disillusioned after this decision.
But hey, let’s not speak too much about the dead. Let’s rather have a look at 2 companies that have entered the Noble 30 index with a lot of pride.
|Dividend Per Share||1.27p||10-Year Average Dividend Growth||7.35%|
|Years Dividend Growth / Remain||39||EPS Payout Ratio||36%|
CRH Plc (LON:CRH | ISIN:IE0001827041) is one of the leading building materials businesses in the world. They manufacture and supply a diverse range of integrated building materials and products. These can typically be found throughout the built environment, from major public infrastructure projects to commercial buildings and residential homes.
In other words: they produce cement, asphalt, and several other core materials to build big stuff.
And this is why I like this company so much, because can it get any more boring than this?
Having said that, CRH Plc is an Irish company listed on the London Stock Exchange. This means that you are still obliged to pay a 25% dividend withholding tax at source for which you can request a certain amount back depending on the tax treaty between Ireland and your country.
But let’s also have a brief look at their financial profile.
Financial Profile CRH plc
The company has been growing its revenue steadily over the last few years and it now makes 32 billion in sales. 44% of sales are generated by the “Americas materials” business unit. This is the fastest growing unit in absolute numbers, the second is the “building products” unit and the clear laggard is the “Europe materials” unit.
The good thing is that they have been able to turn those incremental revenues into solid profits because they doubled their earnings per share since 2018. This is also a clear example of a company that has been able to pass on inflation to its customers. Actually, I wouldn’t be surprised if CRH is one of the key contributors to why we have such strong inflation.
On the Free Cash Flow front it could’ve been a bit more stable, but this company is a good free cash flow machine. The 2022 dividend was also easily covered by a FCF payout ratio of 38%. This should give the company ample room to grow its dividend in the upcoming several years.
Having said that, the balance sheet looks also solid. They have about 6 Billion dollars in cash on their balance sheet, while their Long-Term debt is about 9.2 Billion dollars. A healthy debt-to-equity ratio of 42% should therefore come as no surprise.
Knowing this, it doesn’t surprise me that they are so committed to shareholder returns. Firstly, they announced a 5% dividend increase which makes it their 32nd+ consecutive dividend hike. Secondly, they announced a 3 billion US Dollar share buyback over the upcoming 12 months. This means an ~8% reduction in share count at the current price.
On the other hand, they do require a strong balance sheet to prepare for rainy days. This is a company that is sensitive to economic cycles (main risk!) because a lot of its sales depend on government contracts and the real estate market. Hence, they need a financial cushion to be able to pay a growing dividend during difficult times.
Dividend Profile CRH Plc
I’m glad that CRH entered the list because it’s a company with one of the longest dividend growth track records in Europe. I simply overlooked it when doing my initial Noble 30 research and I’m quietly hoping that there are more like these.
But what I know is that the company has been able to grow or maintain its dividend for the last 39 years. This is why this stock entered the European Dividend Aristocrats list at the 7th place and kept iconic dividend growers like Roche behind them.
As you can see though, the aftermath of the great financial recession from 2008 has been difficult for the company. That’s why they weren’t able to increase their dividends all the way from 2009 to 2016. However, it does show commitment to the dividend and since then they made up for it and increased their dividends by ~80% in total.
It is a pity though that the company “only” pays a 2.7% dividend yield right now, especially after its most recent run-up. In such a case, it’s not too attractive for me, because we also have to pay an initial 25% dividend withholding tax.
Anyway, let’s give CRH Plc a warm welcome as a European Dividend Aristocrat.
Watch more: my buddy Engineer My Freedom discussed CRH Plc in one of his most recent videos.
|Dividend Yield||2.08%||Sector||Information Technology|
|Dividend Per Share||54.6p||10-Year Average Dividend Growth||8.73%|
|Years Dividend Growth / Remain||22||EPS Payout Ratio||64%|
Relx Plc (LON:REL | ISIN:GB00B2B0DG97), formerly known as Read Elsevier, is the second new entrant into the Noble 30 index.
By origin, it is a Dutch-British multinational which is headquartered in London. The company was founded in 1993 after a merger between Dutch Elsevier and British Read International.
The company is a so-called information and analytics company that provides access to scientific, technical, medical, and legal information. In other words, it’s the main competitor of Wolters Kluwer in an almost oligopoly industry.
In its essence and like CRH plc, this is another really boring business to operate in. It’s a slow-compounding industry, but as most of you know, I love these kinds of industries. They often provide very predictable and stable cash flows and this is exactly what we need for ever-increasing dividend growth!
But let’s also have a brief look at their financial profile.
Financial Profile RelX plc
First of all, I like that they have been growing their revenue from about 6 billion pounds in 2015 to about 8.5 billion pounds during the trailing twelve months. Interestingly, 60% of their sales are made in the United States and only 21% in Europe.
Also, 54% of sales are in the form of subscriptions. I love these kinds of business models because it typically results in relatively high margins and a lot of recurring business (like SAAS). Sometimes I wonder why corporate customers are such a fan of SAAS subscriptions or contractor workforces. Isn’t it just an illusion that it gives flexibility while in the end they hardly ever make use of that flexibility?
Having said that, the company is doing a good job to let the increasing sales trickle down via the income statement. 10% in earnings per share growth in 2022 is a very solid number. Something I wish more of my holdings would be able to claim.
Balance sheet wise the company still has some work to do in my humble opinion. As an example, they have 5.8 billion in debt and only 3.8 billion in equity to the shareholders. This means a debt-to-equity ratio of ~1.5 while my preference is around 0.6.
What I dislike even more is that they have high exposure to goodwill, because it is about 8.4 billion. In its essence, goodwill is what management “overpaid” for an acquisition compared to its fair value. In RelX’s case, goodwill is ~53% of their entire balance sheet. This is not so much of an issue until it isn’t!
Companies will need to reassess the value of those assets on a regular basis and if anything goes wrong then this will typically end up in write-offs. Those write-offs travel via the equity part of the balance sheet and downgrade the credit profile of a company.
Hence, I don’t see this as a short-term issue, but it is definitely a risk to take into consideration when buying shares in RelX.
Other than this, their financial profile looks solid and it should enable them to continue rewarding shareholders in terms of a growing dividend.
Dividend Profile RelX
The dividend profile of RelX is where the company shines because it has been able to grow its dividends for 23 consecutive years after a 33% dividend cut in 1998. Especially the last ten years were very rewarding for shareholders with an 8.56% compounded annual growth rate.
As you know, I love chartporn and this is definitely one that makes me excited. I have also no illusion that the company can continue growing its dividends, albeit a bit slower going forward.
The recent dividend hikes have resulted in an EPS payout ratio of 64%. This means that RelX really requires a growing EPS in the next few years because it has limited growth potential via EPS payout expansion.
Having said that, the company paid 54.60 pence in dividends for the fiscal year 2022. This gives the company a current yield of 2.08% which is relatively low compared to what I would expect from such a company.
Unfortunately, this has mostly to do with overvaluation. Paying a 31 Price to Earnings is simply too much for me and not worth it. However, if you are in it for total return, then the below price chart should really speak to your imagination.
But to sum it up, let’s give RelX Plc also a warm welcome as a European Dividend Aristocrat 👏
Companies come and go and no company lasts forever. In the end, every company will experience turbulent times and some of them will have to protect their balance sheet by cutting their dividends.
This is unfortunate, but also in Europe, there will always be successors knocking on the Noble 30 door. This time it resulted in the addition of two British dividend aristocrats. However, I’m sure that next time we could see new entrants from other countries entering the list, i.e. from Sweden.
Listen to the latest Dividend Talk podcast episode to learn more about quality Swedish dividend growers.
This is also the reason why maintaining the Noble 30 is such a nice job. Anyone that tells you that there are no proper European dividend growth stocks is wrong and you should simply point them at the Noble 30 index.
Yes, it may not have the iconic quality of its comparable US dividend aristocrat list. but there is really no reason not to diversify your portfolio with some high-quality European dividend growth stocks.
Having said that, I hope that you found this article insightful and useful. Besides that, I would also like to wish you lots of continued dividend growth and dividend hikes.
May the dividends be with you!
European Dividend Growth Investor
PS: before I forget, all data from the Noble 30 index has been updated and all the dividend statistics are accurate as of now. I have also updated the trading212-pie, so you might have received a notification about that if you’re investing in it alongside of me.
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.