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10 European dividend stocks to swerve the new inflation squeeze

By Adrian Holliday


Binder labelled dividends on a desk
Dividends to the fore – Photo: Shutterstock

Dividend investing gets tougher when war and pandemics descend.

Supply chains wobble, interest rates tend to rise, as does inflation. Gold gets a bit of a rush. Sounds close to home?

The good news is there’s no shortage of stocks out there offering inflation insulation for your money, plus long-term dividend prospects – solid cashflow is king. 

Where are they?

Dividend kings are strewn everywhere, from banking to industrials, utilities and energy. The well-known names include British American Tobacco, Tesco and BMW.

The coronavirus pandemic saw a number of once-dependable dividend payers suffer, particularly in the real estate and energy sectors. Post-Covid-19, this field is more nuanced.

Morningstar financial analyst Michael Field has lifted the bonnet on almost 30 European dividend stocks that look in strong shape to weather the next five years. 

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Here’s Capital’s Top Ten dividend picks – from banking to energy and defence

1. British American Tobacco (BTI)

Definitely not an environmental, social, and governance (or ESG) stock but generous dividends and strong branding supply undeniable advantages, historically proved. 

“Hedging its bets through investment in e-cigarettes the company has been able to consistently raise prices over the years in its conventional cigarette business," Field wrote in a report obtained by

Price (11 March 2022): 3,132.50p

Five-year projected dividend yield: 5.0%

Morningstar Rating ٭ ٭ ٭ ٭ 

2. ABN Amro (ABNd)

The Dutch lender has been on an operational simplification spree, taking an axe to costs. Morningstar says ABN now trades at a 17% discount, on a price/tangible book basis, compared to the rest of the eurozone banking sector it covers. 

“At the same time, we believe it [ABN Amro] can generate,” says Morningstar, “at least a similar level of mid-cycle profitability.”

Price (11 March 2022): €11.06

Five year projected dividend yield: 4.9%

Morningstar Rating ٭ ٭ ٭ ٭ 

3. TotalEnergies (TTEF)

The French multinational took steps to slash costs and capital spending to safeguard its dividend during the pandemic, which Morningstar believes is sustainable in the long-term.

While committed to net-zero emissions by 2050, TotalEnergies’ oil and natural gas production "is still in growth mode, with liquid natural gas in particular set to grow 30% by 2025 through expansion of existing projects”.

Price (11 March 2022): €45.94

Five year projected dividend yield: 4.8%

Morningstar Rating ٭ ٭ ٭ ٭ 

4. Koninloijke KPN (KPN)

The Rotterdam-based comms player has the benefit of operating in a market with stable pricing and governance, plus a robust 40% sector share. The group is strongly focused on expanding its fibre capability. 

Its management aims, says Morningstar “to grow the dividend at a rate of around 3-5% over the next few years.”

Price (11 March 2022): €3.05

Five year projected dividend yield: 4.8%

Morningstar Rating ٭ ٭ ٭

5. Iberdrola (IBE)

This Spanish electric player is one of the few utility companies exposed to strong earnings per share growth potential over the next few years, driven by the group’s exposure to renewables projects says Morningstar.

“The firm’s diversified exposure to networks, power generation, and supply also go some way to ensuring stability in its cash flow stream.”

Price (11 March 2022): €9.81

Five year projected dividend yield: 4.4%

Morningstar Rating ٭ ٭ ٭  


0.60 Price
+3.710% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168


19,526.60 Price
-1.140% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0


3,540.64 Price
+0.860% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00


67,660.40 Price
+0.870% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

6. BASF (BASd)

Massive size and diversity are this chemical company’s strengths meaning “a resilient earnings stream that provides strong support for the dividend throughout the cycle,” says Morningstar.  

BASF’s push into China, including development of its cathode materials business for electric vehicles, plus a healthy innovation pipeline of crop chemicals, bolster dividend growth chances too.

Price (11 March 2022): €55.08

Five year projected dividend yield: 4.4%

Morningstar Rating ٭ ٭ ٭ ٭ ٭

7. H&M (HMb) 

Otherwise known as Hennes & Mauritz, H&M is the world’s second-largest fashion player with strong scale advantages and a robust market position.

Morningstar predicts H&M earnings growth of more than 7% in the next decade “which we believe will translate into a progressive dividend, with the large family shareholding influencing a high payout ratio”.

Price (11 March 2022): SEK 148.70

Five year projected dividend yield: 4.2%

Morningstar Rating ٭ ٭ ٭ ٭ 

8. BAE Systems (BA)

Morningstar’s BAE star rating is lower than other stocks on the list but BAE has very strong barriers to entry. The Russian-Ukrainian war in Europe is seeing more interest in the defence sector. 

Despite some lumpy revenues BAE Systems “has for all but one year in the last decade paid a dividend that has been fully covered by cash flows,” says Morningstar.

Price (11 March 2022): 729.40p

Five year projected dividend yield: 4.1%

Morningstar Rating ٭ ٭ 

9. BMW (BMW) 

Not just a car maker, BMW’s a brand in its own right, packing serious pricing power. The premium product portfolio should support better-than-average growth over the next few years.

That growth, in turn, should suck in sufficient cash flow to cover the dividend. “The company’s net cash position also gives us comfort in these uncertain economic times,” says Morningstar.

Price (11 March 2022): €74.55

Five year projected dividend yield: 3.5%

Morningstar Rating ٭ ٭ ٭ ٭ ٭ 

10. Unilever (ULVR)

The FMCG company has an iron grip on supermarket aisle brand names, rebuffing new competitors. The brand clout is diverse and many Unilever brands have proved resilient in a very tough sales period.

“The company’s dividend payout ratio has averaged 60% over the last decade, while acquisitions have generally been funded through asset sales,” adds Morningstar. 

Price (11 March 2022): 3,368.50p

Five year projected dividend yield: 3.3%

Morningstar Rating ٭ ٭ ٭ ٭


Sum-up: powerful plodders – what dividend winners must promise

  • Pricing muscle – companies which can pass on price inflation turbulence to consumers easily.
  • Low financial gearing – companies with low – or lower – debt levels to keep risk of financial failure at bay.
  • Dividend cover – enough cashflow to honour dividend expenditure is super-important. 

You can throw in good moats – see below – and an honest crew at the top too, as investor Warren Buffet told CNBC in 2018:

“The most important thing [is] trying to find a business with a wide and long-lasting moat around it… protecting a terrific economic castle with an honest lord in charge of the castle.”

Moats? Think entrenched brand and intellectual property rights, for example.

Markets in this article

16.255 USD
-0.18 -1.100%
BAE Systems plc
12.687 USD
-0.11 -0.860%
44.07 USD
-1.28 -2.830%
89.26 USD
-2.25 -2.470%
British American Tobacco - ADR
33.26 USD
0.16 +0.490%

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