20 Dividend Stocks At A Discount And A Detailed Look On Two European Dividend Gems (2024)

The high-flyers like Netflix (NFLX), Roblox (RBLX), PayPal (PYPL), Palantir (PLTR), Shopify (SHOP), and Zoom (ZM) which have done great, especially in the pandemic years of 2020 and 2021, continue to take a decent beating. Instead, capital is moving toward solidly positioned value stocks. In the meantime, the consequence of this trend change can be seen in the longer-term view. Boring dividend stocks such as Procter & Gamble (PG) or Altria (MO) are now outperforming the former hype stocks. Of course, I do not have a crystal ball. In this respect, it is impossible to predict the future price trend of stocks accurately. From my point of view, growth stocks such as Roblox, Salesforce, Palantir, or Shopify look quite interesting after the price setbacks. However, investors need to keep in mind that the markets could be facing a fundamental turnaround. The crash in the bond markets and the high inflation figures make action by the central banks inevitable from the current perspective. Given the rally in many tech stocks in 2020 and 2021, the recent correction may go further. The S&P 500 illustrates this simple stock market wisdom: What flies high can fall low. Accordingly, the downside exaggeration is usually as high as previously to the upside.

Overview: Dividend Stocks at a discount in April 2022

Overall, the fundamental environment remains relatively poor for growth stocks. So before I burn my fingers with unprofitable companies or reach for the falling knife, I'll stick to my boring dividend strategy. This strategy aims to benefit from rising profits and dividends over the long term. Therefore, we continuously monitor over 1,500 dividend payers worldwide and know which dividend stocks stand out with an above-average dividend yield as of today. Here is a selection of 20 dividend stocks whose current dividend yield has increased significantly over 12 months. The links in the table lead directly to one of our popular dividend profiles. Further below, we also look at two stocks from this list.

The table below will show you the top 20 stocks whose dividend yields meet these criteria. The delta column on the far right shows how many percent the current dividend yield is above the historical average.

Some explanations on how we scan the yields: The selection of discount dividend stocks is based on the algorithms of our Dividend Turbo tool. With the tool, we examine hundreds of the world's most popular dividend stocks and compare the current dividend yield with the historical yield. Since a yield below 2 percent is uninteresting for many dividend investors, we only take stocks with a dividend yield of at least 2 percent into account. In addition, we list only reliable dividend payers, which we measure by a dividend stability ratio of at least 0.8. The ratio ranges from -1 (consistently lower dividend every year) to +1 (consistently higher dividend every year). Furthermore, we only considered stocks with a dividend history of at least five years without cuts.

TAG Immobilien - A dividend gem I pass on

With a market capitalization of EUR 3.6 billion, the real estate group TAG Immobilien is a flyweight compared to the European real estate giant Vonovia, which has a market cap of about EUR 30 billion. Despite the real estate boom and further increases in rents and property prices, the stock has lost more than 30 percent of its value since last summer. Accordingly, TAG Immobilien performed just as poorly as Vonovia (OTCPK:VONOY) (OTCPK:VNNVF).

The majority of its real estate portfolio is located in northern Germany, in Berlin, Chemnitz, Dresden, Erfurt, Gera, Hamburg, Leipzig, Rhine-Ruhr, and Rostock. In total, the company holds just under 90,000 units in Germany. In addition, there are 12,000 units in Poland, spread across several cities. That's not that much. Vonovia, on the other hand, holds 508,388 apartments in Germany, 21,596 apartments in Austria, and 38,467 apartments in Sweden. Similar to Vonovia, sales growth at TAG Immobilien did not follow a straight line. For example, sales for 2022 of EUR 630 million will be below the sales from 2020.

However, this development does not necessarily have anything to do with actual growth. In particular, years with especially high-volume property sales cause revenues to rise. For example, TAG Immobilien generated EUR 73 million in sales of properties in Poland in 2020, while it only sold units worth EUR 62 million in 2020.

More important than sales is the development of FFO ("funds from operations"). This is the crucial indicator for dividend hunters, as real estate companies pay dividends from this income. TAG Immobilien does not show any weakness here. Since 2011, the company has increased earnings per share from operations from EUR 0.09 to EUR 1.24 in 2021.

Fundamental valuation and dividend potential

From a fundamental perspective, TAG Immobilien is cheaper than it has been since the Corona crash. Measured against historical FFO and expected earnings, there is an upside potential of 60 percent until 2024.

The dividend yield also indicates that TAG Immobilien is currently an absolute bargain. Like Vonovia, TAG Immobilien is not a REIT, which is why it is free to determine the level of its distributions. However, the management wants to position the share as an attractive dividend stock, so a payout ratio of 75 percent of FFO has become established in recent years. This ratio is slightly higher than that of Vonovia (70 percent of FFO). Overall, however, this is a figure that leaves sufficient scope for further increases alongside the financing of the business. Overall, TAG Immobilien has raised its dividend in the last 11 years. The average increase has been an impressive 17 percent in the previous ten years. Unfortunately, the momentum has slowed in recent years. For example, the average growth over the last five years is 10.7 percent. The latest increase to EUR 0.93 was only 9 percent. At least shareholders can still enjoy a dividend yield above the multi-year average of 4.7 percent this year, as the ex-dividend day is May 16.

Why I pass here

As with Vonovia and other real estate groups, TAG Immobilien is attracting investors with a high dividend yield and an attractive valuation. Nevertheless, investors must consider that the possible turnaround in interest rates could put real estate values under strong pressure with the accompanying interest rate increases. Therefore, I can only second what I've written in my last Vonovia analysis:

The market is pricing in a reversal in the favorable environment for Vonovia. Not only are bond yields rising, but the central banks have also long since adopted a more hawkish stance. It is not for nothing that Vonovia's share price is correcting more sharply than the broader market. Investors realize that Vonovia's times are getting somewhat more complicated.

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Nevertheless, I do not consider two things to be guaranteed:

1. Real estate prices and rents do not necessarily have to rise; they can also fall.
2. It is not guaranteed that demand for housing will always rise. In Germany in particular, there is much to suggest that demographic change will lead to a decline in demand for housing from 2025s onwards. In such a scenario, the possibility of significantly increasing rents despite inflation would be correspondingly limited.

Investors should consider these two points in their due diligence and not fall for the narrative "it can only go up".

Real estate companies need a lot of capital to develop or purchase new properties. Therefore, a high-interest burden can restrict financial leeway and even lead to a devaluation of creditworthiness. So let's look a the upsides. It is commendable that TAG Immobilien has continuously reduced its debt ratio in recent years. At 43 percent, it is even slightly below Vonovia's ratio (44.7 percent) in terms of interest-bearing debt.

Generally, I also take a positive view of the long-term debt. For example, the average maturity for the company's loans is 7.6 years. Overall, the average maturity of all liabilities is 6.3 years.

Nevertheless, this is not necessarily an advantage. Management has yet to settle the bulk of its liabilities. So far, it has been favorable for TAG Immobilien to replace old liabilities by taking on new debt, as the company has reduced the cost of debt to 1.39 percent. However, everything looks like this comfortable situation will end soon, and the cost of debt will rise again. In such an environment, debt "rolling" is only possible through higher costs, which in turn is detrimental to profitability.

TAG Immobilien stock only looks attractive to me at first glance. Instead, we see the current correction adjusting to the changing market and interest rate environment. In this respect, a price correction does not necessarily go hand in hand with a good entry opportunity. In addition, I do not see a unique selling point for an investment. I am also bothered by the cluster risk of properties in northern Germany, which is why I see Vonovia, with its more broadly diversified real estate portfolio, as a more attractive share.

Valvet Oyj - promising business at an excellent price

With a market capitalization of EUR 4.1 billion, Valmet Oyj is probably not well known among investors. The company, which was formed in 2013 through a spin-off from the Finnish conglomerate Metso Oyj, develops and sells technologies and services for the pulp, paper, and energy industries, which produce, for example, tissues, and cardboard or hygiene products. After a rally from EUR 6.60 in January 2014 to over EUR 37 in December 2021, the stock has corrected by more than 25 percent.

Valmet Oyj in a nutshell

The business area around the manufacture of paper products and energy is promising. Valmet Oyj benefits from the increasing demand for packaging materials and cartons. In addition, technologies related to automation and remote services are in particular demand. Here, Valmet Oyj is trying to expand its existing product portfolio and deepen existing customer relationships, as the following example shows:

In addition, Valmet Oyj operates in markets that are not growing rapidly but are developing steadily and predictably. According to its statements, the Valmet Oyj holds a leading position in all these markets. This is precisely the right setting for long-term investors as it provides an "invest your capital and forget it for the next ten years" business model.

Looking at business performance

Valmet Oyj has increased sales continuously every year since 2014, with growth characterized by global acquisitions. Although analysts expect sales to jump to EUR 4.8 billion in 2022, they tend to expect sales momentum to slow in the coming years. Investors should bear in mind that the jump in sales in 2022 is mainly due to the merger with Neles, which most recently achieved sales of around EUR 600 million. In this respect, the leisurely sales growth expected by analysts is in line with the past years.

Profit developed in a similarly straight line to sales. Earnings per share rose from EUR 0.31 in 2014 to EUR 1.97 last year. In the current year, earnings are expected to increase to EUR 2.09. For the coming years, analysts expect the earnings momentum to improve somewhat. Earnings per share are expected to reach almost EUR 2.50 in 2024. The main reason for the good profit development is the increased profitability. The operating margin has quadrupled since 2014, for example. Analysts are optimistic and hope for further increasing margins in the coming years.

Safe plus historical high dividend yield with one minor caveat

After the price decline, Valmet Oyj shares are particularly interesting for dividend hunters. Investors can currently expect a dividend yield of 4.78 percent. The company has been paying a dividend for eight years, which it increased from EUR 0.15 in 2014 to EUR 1.20 most recently. Therefore, the average increase over the last five years is almost 30 percent. The scope for further increases makes the stock even more appealing, as measured by profit and free cash flow, the payout ratio is 60 and 43 percent, respectively. Currently, the yield is at the upper end of the long-term corridor.

That said, there is one caveat. As a one-time payer, Valmet Oyj has already distributed the dividend for fiscal 2021 to shareholders on March 31, 2022. Investors will therefore have to wait until next year for a dividend payout.

Great fundamentals and solid balance sheet

From a fundamental perspective, Valmet Oyj shares are undervalued and, with an adjusted P/E ratio of 13.1, trade below historical multiples. Only the historical cash flow multiples indicate a fair valuation. However, in the chart below, you can see that the share price has in the past been strongly guided by the earnings multiples and almost exclusively traded above the historical price/cash flow ratio of 8. In this respect, I think it is reasonable to value Valmet Oyj shares as cheap. Measured against historical earnings multiples and expected adjusted earnings for 2024, the upside potential is 60 percent, equating to an annual performance of more than 20 percent, including dividends.

Furthermore, Valmet Oyj's balance sheet looks solid. Although the company has high liabilities, the debt ratio measured in interest-bearing debt is only 10 percent. This ratio has been relatively stable in recent years, which shows that the company has limited reliance on debt capital despite its many acquisitions. Accordingly, the company is well-positioned for a turnaround in interest rates and the associated higher cost of debt. If we consider the cash and cash equivalents of EUR 565 million, Valmet Oyj is virtually debt-free, at least in terms of interest-bearing debt.

Conclusion and challenges to my a bullish stance

In my view, Valmet Oyj shares are an exciting addition to a portfolio. At present, the main attractions are the historically high dividend, a low valuation, and a balance sheet that appears solid at first glance. The stock is not a "get rich quick" scheme, but Valmet Oyj is worth a look for patient long-term investors. Conversely, the rapid decline in the share price causes some concern. We may see a further decline here, with the risk of reaching into a falling knife. This upward trend could be due to investors' general concerns about the operating business. It remains questionable how rising raw material prices will affect demand for Valmet Oyj's products and services. In addition, a slump in the economy could limit the demand for carton boards, paper products, etc. Investors should keep these operational risks on their radar. In this respect, it might be worthwhile to wait until the share price has stabilized somewhat.

The European View