We recently compiled a list of the 8 Best German Dividend Stocks To Invest In. In this article, we are going to take a look at where E.ON SE (XETRA:EOAN.DE) stands against the other German dividend stocks.
Europe’s economy might see some positive developments in 2025, but risks still loom. Strong U.S. growth could boost demand for EU exports while easing inflation in Europe may lead the ECB to cut interest rates, spurring investment and economic growth. A potential increase in U.S. fossil fuel production could lower global oil prices, benefiting oil-importing countries like those in the EU. Additionally, US tax cuts might strengthen the dollar, making European goods more competitive globally. However, the EU’s growth prospects hinge on geopolitical stability. Escalations in conflicts like the war in Ukraine, tensions in the Middle East, or a possible China-Taiwan crisis could derail this cautiously optimistic outlook.
Despite these challenges, Goldman Sachs Research is optimistic about European stocks in 2025, expecting the European index to deliver around a 9% total return, despite challenges like political uncertainty and slow economic growth. In a recent discussion with Sharon Bell, a senior strategist at Goldman Sachs, she explained that while they’ve slightly lowered their forecasts for the index, European stocks could still benefit from cooling inflation and a robust policy response. The team downgraded their targets due to weaker economic data and rising risks in countries like France and Italy. However, they believe the situation isn’t as dire as past crises. They see potential in sectors like telecoms and real estate, which may thrive as interest rates are expected to drop to 1.75% by mid-2025.
This expected drop in rates could also favor smaller, more indebted companies, which might benefit from increased mergers and acquisitions. However, these companies remain vulnerable to weak economic growth. Bell pointed out that a declining euro could enhance the competitiveness of European companies by reducing costs, though it might also discourage foreign investment. Furthermore, European firms heavily rely on sales from the US and China, as domestic sales within Europe have stagnated over the past two decades.
In this context, lower interest rates could help stimulate economic growth and drive higher valuations for European stocks. However, Goldman Sachs remains cautious about the scale of this growth, particularly given persistent inflation concerns. While U.S. equities have recently outperformed their European counterparts, a shift in US valuations could make Europe a more attractive option for global investors.
Supporting this outlook, dividends are emerging as a key contributor to European equity returns. For European companies, the average yield was 3.47% at the end of 2023 and it was projected to increase to 3.67% in 2024, remaining higher than long-term German government bond yields despite their significant rise in 2022. German companies reported a 3.3% dividend yield in 2023, which was expected to grow to 3.53% in 2024. The Allianz Global Investors Dividend Study highlighted the significance of dividends in equity investment returns. Over the past 40 years, dividends have accounted for nearly 36% of the annualized total return of European equities.
Our Methodology
For this article, we used the iShares DivDAX® UCITS ETF (DE) to filter out German dividend stocks. The ETF aims to replicate the performance of an index comprising 15 high dividend yield stocks selected from the 30 largest and most actively traded companies on the Frankfurt Stock Exchange’s Prime Standard segment. From this fund, we focused on picking prominent stocks with stable yields and strong dividend policies. The list below is ranked in the ascending order of dividend yield as of December 27.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here)
An aerial view of a power plant, symbolizing the company’s investments in energy infrastructure sector.
E.ON SE (XETRA:EOAN.DE)
Dividend Yield as of December 27: 4.50%
E.ON SE (XETRA:EOAN.DE) is an energy company operating in Germany, the UK, Sweden, the Netherlands, and other regions globally. It has two segments – Energy Networks, which manages power and gas distribution networks, and Customer Solutions, which provides power, gas, heat, and energy efficiency services to residential, commercial, and public entities.
E.ON SE (XETRA:EOAN.DE)’s sales fell by €13.0 billion to €56.3 billion in the first nine months of 2024. Energy Networks saw a sales increase, driven by higher network tariffs, while Energy Infrastructure Solutions’ sales declined due to reduced energy sales and lower heating prices. Adjusted EBITDA for Energy Networks remained stable, while Energy Infrastructure Solutions and Energy Retail both saw declines in earnings.
However, investments increased by 20% to €4.7 billion, focused on property and equipment. In the first nine months of 2024, E.ON SE (XETRA:EOAN.DE) invested over €4.7 billion, a 20% increase from the previous year, with plans to invest a total of €7.2 billion for the full year. Key investments included expanding and modernizing Energy Networks (€3.6 billion), improving customer service and e-mobility infrastructure in Energy Retail (€390 million), and increasing investments in Energy Infrastructure Solutions (€660 million), especially in battery storage and smart meters. E.ON SE (XETRA:EOAN.DE) also issued €4.8 billion in bonds, with green bonds covering 75% of its financing needs. The company plans to invest €42 billion in the energy transition by 2028, requiring regulatory improvements to ensure investment security.
E.ON SE (XETRA:EOAN.DE) approved a dividend of 53 cents per share for the 2023 financial year, marking a 4% increase from the previous year and the ninth consecutive dividend hike. CEO Leonhard Birnbaum reiterated the company’s goal of increasing the dividend by up to 5% annually through 2028, with plans to continue raising it beyond that. It is one of the best German dividend stocks to monitor.
Overall EOAN.DE ranks 7th on our list of the best German dividend stocks to invest in. While we acknowledge the potential of EOAN.DE as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EOAN.DE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.