MW These 16 dividend stocks have 'high quality yields' if you want to diversify away from the U.S.

By Philip van Doorn

European stocks tend to outperform during down cycles for the U.S. market

Investors and traders might focus on the reasons behind periods of decline or higher volatility in the stock market. But long-term investors have always needed to weather stock-market storms, regardless of political trends.

According to John Buckingham, editor of the Prudent Speculator, there have been 39 corrections (declines of 10% or more from recent highs) for the S&P 500 SPX since the value-oriented investment newsletter was launched in 1977. In a note to clients on Monday, Buckingham wrote that those declines had averaged 17.83%, but that the index had "also enjoyed 39 rallies of 10% or greater since 1977, with the average gain during the periods in green working out to a whopping 40.69%."

"Alas, they don't ring a bell to mark the start and end of Bear and Bull Markets, which is why we always say that time in the market trumps market timing," he added.

The problem with moving to the sidelines to avoid a market decline is that investors are likely to return well after a market recovery has started. Unless your timing is perfect, attempts at market timing are likely to lead to lower total returns over the long term.

But you might still cut your risk by diversifying your portfolio. For example, a fund tracking the S&P 500 will feature low expenses for a portfolio of hundreds of stocks. But it is limited to stocks listed in the U.S. and weighted by market capitalization. That means the largest three holdings of the $576 billion SPDR S&P 500 ETF Trust SPY - Apple Inc. $(AAPL)$, Microsoft Corp. $(MSFT)$ and Nvidia Corp. $(NVDA)$ - make up 18.6% of the portfolio. And the top 10 holdings make up nearly 34% of the fund.

Considering how well the broad U.S. market has performed since the 2008 financial crisis, it is likely that your portfolio is concentrated in U.S. stocks. But if you are seeking income from companies that pay dividends and want to lower your risk by broadening your portfolio to include non-U.S. stocks, a screen from analysts at Jefferies might serve as a good start for your own research.

Before presenting that list, take a look at this chart from Janus Henderson Investors, showing how the S&P 500 and the MSCI EAFE Index XX:990300 of 21 stock markets in developed economies excluding the U.S. and Canada have gone through performance cycles:

The chart was included in a report titled "Revisiting the Case for Non-U.S. stocks," and shows how positive returns for the two have alternated, based on five-year rolling averages.

Quality dividend stocks outside the U.S.

Last week, we listed 11 U.S. dividend stocks of companies that appear to have plenty of free cash flow available to support or increase their payouts to shareholders.

On Thursday, analysts led by Jefferies Head of Quantitative Strategy Desh Peramunetilleke published a report that included several dividend strategies within and outside the U.S.

One of the strategies listed stocks for a "Europe dividend portfolio based on high-quality yield." Sixteen of the listed stocks had scored five out of five under the Jefferies analysts' methodology, which encompassed free-cash-flow yields, returns on equity, projected earnings-per-share growth rates and other metrics.

Here they are, sorted by dividend yield:

   Company                               Ticker   Country        Dividend Yield  Dividend payments per year 
   DNB Bank ASA                          NO:DNB   Norway                  6.05%                           4 
   HSBC Holdings PLC                     UK:HSBA  U.K.                    5.77%                           1 
   Bank of Ireland Group PLC             IE:BIRG  Ireland                 5.76%                           2 
   Freenet AG                            XE:FNTN  Germany                 5.61%                           4 
   Imperial Brands PLC                   UK:IMB   U.K.                    5.43%                           1 
   AXA S.A.                              FR:CS    France                  5.38%                           4 
   Gaztransport & Technigaz S.A.         FR:GTT   France                  5.29%                           2 
   Erste Group Bank AG                   AT:EBS   Austria                 4.59%                           1 
   UniCredit S.p.A.                      IT:UCG   Italy                   4.52%                           2 
   Banco Bilbao Vizcaya Argentaria S.A.  ES:BBVA  Spain                   4.46%                           2 
   Games Workshop Group PLC              UK:GAW   U.K.                    3.69%                           1 
   Strabag SE                            AT:STR   Austria                 3.28%                           4 
   Roche Holding AG.                     CH:RO    Switzerland             3.10%                           4 
   Industria de Diseno Textil S.A.       ES:ITX   Spain                   2.94%                           2 
   De'Longhi S.p.A.                      IT:DLG   Italy                   2.68%                           4 
   Coca-Cola HBC AG                      UK:CCH   Switzerland             2.21%                           1 
                                                                                            Source: FactSet 

While most U.S. companies that pay dividends make quarterly payments to shareholders, this is less common for European companies. The table shows the number of regular dividend payments each company typically pays per year.

Any screen is only a snapshot. You should do your own research and form your own opinion about a company's ability to remain competitive for the next decade at least, before purchasing an individual stock. One way to begin your research is by clicking on the tickers.

Read: Tomi Kilgore's guide to the wealth of information available on the MarketWatch quote page

Don't miss: Four AI stocks to buy now and hold, says the manager of a five-star, $58B global fund

-Philip van Doorn

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March 31, 2025 11:30 ET (15:30 GMT)

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