By Ian Salisbury

European stocks are having a strong year. If the dollar continues to weaken, Europe may provide fertile hunting ground for dividend investors.

So far in 2025, European stocks have left U.S. ones in the dust, returning more than 24%, compared with just 6% for the S&P 500. Lower interest rates and proposals to increase defense spending have both contributed to U.S. stocks' weak performance.

Investors must also contend with the weakening of the U.S. dollar, which recently endured its worst six months since 2009. The outlook for the dollar in the second half of 2025 isn't particularly bullish, with the Trump administration still negotiating trade deals. The Federal Reserve is also expected to gradually lower interest rates, which would narrow premiums Treasuries pay over foreign government bonds.

A weak U.S. dollar boosts the value of foreign company profits when they are translated back into dollars for U.S. investors. Of course, that also applies to dividends.

Europe could hold a lot of appeal for dividend investors, with the FTSE Developed Europe All Cap index, with its largest holdings in the U.K. Germany, Switzerland and France, yielding 2.9% -- more than double the S&P 500's 1.2%.

What stocks offer the best payouts? To answer that question, Barron's looked to Wolfe Research, which recently compiled a list of European "Dividend Aristocrats" -- stocks that have consistently made and raised dividends for the past 10 years.

The top 10 stocks with highest yields on Wolfe's list all boast payouts of at least 4.5%. Of course, fat yields can be a warning signal -- they may indicate an impending dividend cut. That is certainly a risk investors should look out for, although a long history of steady payments should provide some reassurance.

Legal & General Group, a London-based financial services firm, had the highest payout on the Wolfe list, with shares yielding 8.5%. However, there are some warts: Shares have returned about 20% in 2025 -- nothing to sniff at, but not quite matching the torrid pace set by the European market. There's also the fact that analysts tracked by FactSet expect double-digit profit growth in 2025, which they predict will slow in 2026.

Other companies on the list which yield at least 5% include British American Tobacco, Enel, DNB Bank, Telenor, and Elisa. Rounding out the list from Wolfe are Sanofi, Terna, DCC and Unitel Utilities.

Dividend investors who don't want to sift individual stocks can also buy the First Trust S&P International Dividend Aristocrats exchange-traded fund. The ETF only has about 35% of its assets invested in European stocks, because it also includes big helpings of shares from Canada and Asia, where stock returns have been more mixed in recent months.

Still, with a 3.2% yield, investors may still find it plenty alluring.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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July 01, 2025 12:55 ET (16:55 GMT)

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