Three lagging dividend beauties from Europe
Market leaders with strong track records and a stock price near lows
Three stocks with a strong dividend track records, solid cash flow and a stock price down big time from their all time and 52 week highs. Sounds good doesn’t it? Meet our three new Focus Stocks from Europe. Two of them actually are Dividend Heroes.
In this article, we look at three market leaders who are under significant pressure on the stock market this year due to an unexpected drop in demand for their products. However, this pressure seems unwarranted given their strong cash flows, solid dividend history, and better long-term outlook. Those with patience and a bit of courage can take advantage of a substantial discount to invest now. The stocks come from Sweden, France, and the United Kingdom.
The three new Focus Stocks are Nibe Industrier (Sweden, heat pumps), Kering (France, luxury articles and Gucci owner) and Spirax Group (UK, thermal energy management and fluid technology solutions).
Nibe Industrier was founded in Sweden in the 1950s, initially as a producer of heating systems. Over the years, it has grown into an international company through acquisitions and a focus on innovation. Today, Nibe specializes in energy-efficient solutions for heating, cooling, and ventilation, with a strong emphasis on heat pumps and sustainable technology. Operating primarily across Europe and North America, Nibe is well-positioned to benefit from the increasing demand for eco-friendly heating solutions. The global shift towards energy efficiency and sustainable building practices creates promising growth opportunities for the company, particularly as governments continue to encourage green energy initiatives.
Nibe’s stock price has lost over a quarter of its value in 2024 and is near a multi-year low. The main culprit is declining demand for heat pumps in Europe, where subsidies have been withdrawn, and consumers are postponing large investments in these green alternatives. Nibe happens to be one of the European Dividend Heroes in 2024. Actually it is the worst performing hero if we do not include today’s big gain in the market.
Key financial metrics for Nibe Industrier
Market cap: SEK 93.6 billion ($8.7 billion)
YTD performance: -22.0%
Dividend yield: 1.3% at a stock price of SEK 55.32
5 year dividend CAGR: +14.9%
Forward p/e (2024): 112 (expected to drop to 30 next year)
ROIC (2023): 11.8%
EBIT-margin (2023): 14.0%
Nibe Industrier is a dividend hero in decline with the stock dropping from SEK 140 at the end of 2021 to a low of SEK 40 earlier this year. The recent strong rebound (Today the stock gained 6.4% and trades at SEK 55) is based on longer term prospects with demand for heat pumps expected to pick up eventually.
Nibe has a superb dividend track record but did not hike the dividend this year. We think the company will maintain its current SEK 0.65 per share dividend and eventually will start raising the payout again in the next couple of years when revenues and profits are expected to rebound.
Don’t forget that Nibe is a dividend growth machine with almost 3 decades now without a dividend cut. Actually they hiked the dividend by an average of 20% annually between 2019 and 2023. Only this year they did not announce a dividend hike.
Nibe receives the highest rating from analysts, with 6 buy recommendations, 5 hold, and 4 sell recommendations.
Kering, established in 1963 in France, originally operated in the wood and building materials sector. However, it transformed into a luxury conglomerate through strategic acquisitions of fashion brands. Under the leadership of François-Henri Pinault, Kering has become one of the world’s largest luxury groups, owning prestigious brands like Gucci, Saint Laurent, and Bottega Veneta. The company serves markets across Europe, the United States, and Asia, with China emerging as a critical growth market. Despite recent pressures on the luxury sector, Kering’s brand appeal and the growing affluence in emerging markets, especially in Asia, create strong growth potential. Furthermore, its commitment to sustainability initiatives strengthens brand loyalty and enhances customer engagement.
Kering is under significant pressure due to its reliance on Gucci, which accounts for more than half of its revenue and profit. Additionally, the luxury market is experiencing a downturn affecting most major brands heavily dependent on Chinese consumers.
Key financial metrics for Kering
Market cap: €28.6 billion
YTD performance: -41.3%
Dividend yield: 6.1% at a stock price of €234.40
5 year dividend CAGR: +5.9%
Forward p/e (2024): 19.7
ROIC (2023): 13.8%
EBIT-margin (2023): 24.1%
Kering pays semi-annual dividend with a payment of €14.00 per share in the last two years. Because the current problems with Gucci and the declining revenues for Kering many analysts expect the company to cut its dividend. If we look at the expected cash flows they do not necessarily have to cut their dividend, but that is a big if when the market further deteriorates for Kering.
Given the big stock price decline the stock looks tempting. Please note that 22 analysts rate Kering as a ‘hold’ currently, with only 2 ‘buys’ and also 5 ‘sell’ ratings. In the last 30 years Kering hiked its dividend by double digits every year (!). Kering also cut its dividend by 23.8% for FY 2019 because of the covid pandemic.
Spirax Group (formerly Spirax Sarco Engineering) was founded in the United Kingdom in 1888, initially specializing in steam solutions. Today, it’s a leading player in thermal energy management and process control technologies, supplying industries like pharmaceuticals, food production, and chemicals. With a strong global presence, Spirax-Sarco focuses on markets that require advanced energy management systems, with a particular emphasis on emerging markets and industries driven by efficiency and cost reduction. The company is well-positioned for future growth as industries increasingly prioritize sustainable energy use and process optimization, benefiting from Spirax-Sarco’s advanced technologies and solutions.
Spirax Group, another Dividend Hero, has long been an expensive stock, but in 2024 it has lost nearly 40% of its value and is trading around its lowest level in more than five years. Revenue and profit are under pressure, and dividend growth has also slowed significantly in recent years.
Key financial metrics for Spirax Group
Market cap: GBP 4.83 billion
YTD performance: -37.5%
Dividend yield: 2.5% at a stock price of 6565 pence
5 year dividend CAGR: +9.9%
Forward p/e (2024): 22.6
ROIC (2023): 12.6%
EBIT-margin (2023): 18.5%
Dividend Hero Spirax Group has been a highflyer for many years resulting in a high valuation in the stock market. Lagging growth has resulted in a strong stock price drop for Spirax.
Investors seem to forget that Spirax keeps on raising its dividend every year with no stopping to that expected in the near future. Spirax hiked its dividends by double digits every year in the last decade and only did a smaller 5.3% increase this year.
As with Kering, analysts are also cautious about Spirax, with currently 2 buy recommendations, 12 hold, and 3 sell recommendations.
Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.