Here’s a stat that could shape where you look for dividend stocks in the near future: Spanish bond yields are sitting near 200-year lows.
Yes, 200, as in two centuries. The last time Spain had yields this low, Napoleon had only recently been exiled to Saint Helena. The Spanish 10-year government bond now yields 3.26%. As recently as a year ago, yields were over 5%.
And Spain’s not alone; 10-year yields in France (2.1%), Italy (3.3%) and even Ireland 3.0%) are sitting at levels no one would have believed a year ago: 2.1%, 3.3% and 3.0%.
The driving factor in the fall in yields was a return in investor confidence; while the eurozone is still in bad shape, it won’t be breaking apart any time soon. But don’t underestimate the precipitous drop in inflation across the eurozone, as well as expected quantitative easing by the European Central Bank. This monetary tailwind boosts the chances that European stocks will outperform their American counterparts.
Of course, all else is not equal. European stocks are also much cheaper than American equities, based on the most recent cyclically adjusted P/E ratio figures. According to data just released by Meb Faber’s Idea Farm, Ireland, Austria, Italy, Spain, the U.K. and France all trade at CAPEs of 8.4 to 14.4. The U.S. market trades hands at a CAPE of 25.4.
The combination of cheaper valuations and a more favorable monetary regime should make European stocks the better bet over the next several years. So with that said, today I’m going to recommend three solid European dividend stocks that I expect will generate significantly better total returns than the S&P 500.