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 BASF SE (XETRA:BAS.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)
A close up view of a specialized chemical compound in the lab.
BASF SE (XETRA:BAS.DE)
Dividend Yield as of December 27: 7.99%
BASF SE (XETRA:BAS.DE), founded in 1865 and headquartered in Ludwigshafen, Germany, is a global chemical company operating in six segments – Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care, and Agricultural Solutions. BASF SE (XETRA:BAS.DE) provides petrochemicals, advanced materials, additives, coatings, crop protection products, and digital farming tools, serving industries like automotive, electronics, and consumer goods. The company also engages in engineering, leasing, and commodity trading.
BASF SE (XETRA:BAS.DE) reported sales of €15,739 million in Q3 2024, on par with the previous year. Growth in volumes across core segments like Chemicals, Materials, Industrial Solutions, Nutrition & Care, and Agricultural Solutions drove sales, while Surface Technologies saw a decline due to weak automotive demand. Sales were negatively impacted by currency effects, particularly from the Argentine peso and Brazilian real, and lower prices in most segments, especially for metals in Surface Technologies. The Chemicals segment performed well, with strong sales in Petrochemicals driven by higher prices in the propylene value chain, although competition-led price reductions in Intermediates partially offset these gains.
BASF SE (XETRA:BAS.DE) targets an EBITDA of €10-12 billion and a free cash flow of over €12 billion by 2028, with a 10% ROCE. It plans to distribute €12 billion to shareholders from 2025 to 2028, including annual dividends of at least €2.25 per share and €4 billion in share buybacks starting by 2027. It is one of the best German dividend stocks to invest in.
Overall BAS.DE ranks 3rd on our list of the best German dividend stocks to invest in. While we acknowledge the potential of BAS.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 BAS.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.