European companies are flush with cash than at any time in recent history. Goldman Sachs said Stoxx 600 companies have nearly 1.5 trillion euros ($1.6 trillion) in cash on their balance sheets, 25% above pre-pandemic levels. The bank said Europe’s free cash flow yield is about 6%, more than a percentage point higher than in the United States. Goldman Sachs said the industries with the highest yields include automobiles, commodity producers and financials. The bank favors the latter two because of their stated focus on shareholder returns. Overall, balance sheets of companies in the region are particularly strong, with EBITDA (earnings before interest, taxes, depreciation, and amortization) net debt levels near historically low levels, the bank said in an April 23 report. Goldman Sachs said the difference in dividend yields between Europe and the United States is the narrowest it has ever been, making Europe more attractive. “In other words, Europe rarely looks cheaper in absolute and relative terms,” it said. “We believe dividends in Europe are likely to continue to grow given payout ratios are below historical averages… and investment opportunities remain scarce,” the bank said, adding that European dividends are expected to grow by around 3% in 2024, after It will grow by about 4% in 2025. The dividend yield of the MSCI European Value Index is 4.8%, which is 2.8 times that of the MSCI European Growth Index. Goldman added that volatility around interest rates now suggests value stocks should continue to outperform growth stocks. “In this environment, we believe investors should also focus on stable income strategies, as income can become an important driver of returns,” it said. Here are some of Goldman Sachs’ picks for high-dividend-yielding stocks. They have the highest 12-month forward dividend yields of any sector in the Euro Stoxx 600 Index. The bank highlights that the screen identifies companies with the highest sustainable dividend yields. —CNBC’s Michael Bloom contributed to this report.
