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 Volkswagen AG (XETRA:VOW3.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 auto warehouse filled with newly acquired used cars.
Volkswagen AG (XETRA:VOW3.DE)
Dividend Yield as of December 27: 10.20%
Volkswagen AG (XETRA:VOW3.DE), headquartered in Wolfsburg, Germany, manufactures and sells vehicles globally, operating through four segments – Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. Volkswagen AG (XETRA:VOW3.DE) develops and produces vehicles, engines, and software, along with motorcycles, trucks, buses, and propulsion components.
In the first nine months of 2024, sales revenue for the group rose slightly to €237.3 billion, up from €235.1 billion in 2023, driven by growth in the Financial Services segment, though automotive sales dipped by 1% due to lower volumes. Operating results fell 21% year-on-year to €12.9 billion, impacted by restructuring costs of €2.2 billion and higher expenses for new products, leading to a margin of 5.4%. Net cash flow in the automotive division decreased by 34% to €3.3 billion, despite solid Q3 performance supported by working capital release. Vehicle sales totaled 6.5 million, down 4%, with growth in North and South America offset by declines in Western Europe and China. Meanwhile, order intake in Western Europe rose 9% year-on-year, with a 27% increase in Q3 due to strong demand for new models.
At its Annual General Meeting, Volkswagen AG (XETRA:VOW3.DE) approved a 2023 dividend increase to €9.00 per ordinary share and €9.06 per preference share, distributing €4.5 billion to shareholders on June 4, 2024. It is one of the best German dividend stocks to buy, ranking 1st on our list due to its impressive yield.
Overall VOW3.DE ranks 1st on our list of the best German dividend stocks to invest in. While we acknowledge the potential of VOW3.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 VOW3.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.