Over the last few years, European dividend stocks have lagged behind their American counterparts. But analysts feel that things could change for the better this year. This is mainly because the ECB (European Central Bank) is not likely to increase interest rates as compared to the U.S. This will give an advantage to European companies by further boosting their cash flows and rewarding their shareholders.
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Today, we have two such stocks from the Spanish markets that are maintaining healthy returns for their shareholders during uncertain times. Telecommunications company Telefonica (ES:TEF) and power company Iberdrola (ES:IBE) have dividend yields higher than their respective sector averages.
Let’s see these stocks in detail.
Telefonica
Based in Spain, Telefonica provides fixed, mobile, broadband, and television subscription services across Europe and the U.S. The company continuously invests in improving its network, which is visible in its excellent services in terms of speed and coverage.
The company’s dividend game has been pretty consistent over all these years. With a dividend yield of 8.7%, much higher than the sector average of 0.94%, the stock is appealing to income investors.
In its third-quarter results for 2022, the company approved a dividend of €0.3 per share. The revenues during the same period increased by 11.2% year-on-year to €10.3 billion. Slow growth in Spain and Germany was offset by strong growth in Brazil and Mexico. The highlight of the results was its cash flow, which grew by 68% to €2.4 billion.
The company has a technological edge in its infrastructure, which helps it maintain its user base. This, along with its strong cash flows, makes a promising case for a dividend stock.
Will Telefonica Stock Go Up?
The stock has dropped by 38% in the last three years. According to TipRanks’ analyst consensus, Telefonica stock has a Hold rating based on a total of eight recommendations.
The average price target is €3.94, which is almost 19% higher than the current price.
Iberdrola
Iberdrola is among the leading energy companies in the world. It is known for its commitment to clean energy generation. 90% of its investments this year were in renewable energy.
The company’s stock has generated a return of 15% for its shareholders in the last year. The stock price matches the business performance, depicting the resilience of its business model. The company’s portfolio of long-term contracts and hedged raw material supplies for the next two years provides market volatility protection.
Iberdrola posted a 29% growth in its net profit of €3.1 billion in the third quarter of 2022. The numbers were well supported by international markets like the U.S. and Brazil, which compensated for a 14% decline in the Spanish markets. The total investments increased by 14% to €7.6 billion, of which 75% were focused on international markets.
Riding on such positive growth, the company confirmed its profit outlook to be between €4 and €4.2 billion in 2022. It didn’t forget about its shareholders and approved an interim dividend of €0.18 per share at a growth rate of 5.9%, payable in January 2023.
Iberdrola Share Price Forecast
According to TipRanks, Iberdrola stock has a Moderate Buy rating, based on six Buy and five Hold recommendations.
The average IBE share price forecast is €11.57, which is 7.5% higher than the current price levels.
Barclays analyst Jose Ruiz is very bullish on the stock, predicting a 30% increase in the share price at a target price of €14.1.
Conclusion
With the bear run in the market, dividend stocks have become everyone’s favorite. The companies are also offering generous hikes in dividends to compensate for the falling share prices.
These companies are consistent with their dividends even in difficult times, which makes them trustworthy for investors. The business models of Telefonica and Iberdrola support solid cash generation for them, which in turn solidifies the dividend payments.
