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German Elections

The Best Dividend Stocks to Play the German Elections

Sam Bourgi Sep 19, 2017


The German election is less than one week away, and Chancellor Angela Merkel appears set to defend her position against a myriad of candidates for a fourth term in power. Although Social Democrat leader Martin Schulz is said to be the only serious contender, an ineffective campaign has all but extinguished his chances of ousting Merkel.


The most interesting development to come out of the election polls has been the ascendancy of the Eurosceptic Alternative for Germany (AfD) movement. The far-right nationalist party has a platform that is anti-immigration, and seeks to break away from the Eurozone. AfD has already made inroads in European and state elections, and now looks poised to become the first far-right party with representation in the Bundestag in over half a century.

Germany’s election, which is scheduled for September 24, is the last of a triad of elections that saw some of Europe’s biggest economies nearly pursue a radical shift in policy. The Eurosceptic parties were defeated in the Netherlands and France earlier this year, but not without putting up a strong fight. Against this backdrop, AfD’s ascendancy is hardly surprising, especially in light of the European migrant crisis, a brewing Brexit debate and the never-ending debt saga involving Greece.

Brexit was a watershed moment for Europe – one that has emboldened ultra-nationalist movements across the region. You can get a good sense of the convictions behind voting Leave here.

Chancellor Merkel currently heads a large coalition government comprised of her own Christian Democratic Union (CDU) party and its Bavarian sister party, the Christian Social Union (CSU), and Martin Schulz’s Social Democrats (SPD). The current alignment is rare because the CDU/CSU and the SPD are the two main opposition parties. It was essentially a union of last resort for Merkel after her previous coalition partners, the Free Democrats, failed to win seats during the last election.


Impact of the German Elections on Financial Markets


While there is no easy way to assess the financial impact on the election, investors are likely rooting for a clean Merkel victory. A shift in power to the rival Social Democrats would also maintain the status quo that investors have come to rely on in Europe’s largest economy.

The real wildcard is the AfD party. A significant shakeup in the Bundestag could trigger volatility in the market, as it would no doubt raise concerns that the Eurosceptic agenda is gathering pace. This is a major concern because Germany isn’t some fringe state; it is the world’s fourth-largest economy and the main engine of the fledgling euro area project. Euroscepticism spreading to the core of the euro and European Union (EU) will not be treated lightly by investors.

The AfD party notwithstanding, Germany’s economy is dragging the Eurozone out of its misery. A synchronized recovery within the EU borders and across much of the world has also helped the region put up some of its strongest growth numbers in years. What’s more, U.S. investors have already set their sights on Europe and Japan amid the latest global recovery, a sign that German markets will withstand whatever comes out of next week’s election.

In the face of geopolitical uncertainty, it pays to be well invested in dividend stocks. Check out our Best Dividend Stocks page for the highest yielders.


Four Dividend Stocks to Play the German Elections


Dividend stocks provide a good investment opportunity regardless of the election outcome. The four companies have strong exposure to the German economy, which is gaining traction on improved domestic and international demand.

1. BASF SE

BASF is the world’s leading chemical company that has put up solid returns since the 2016 Brexit referendum. Although its yield has declined in recent years, it remains in a solid range for investors looking for steady income following the election cycle. Equity research firms such as Zacks have given the stock a ‘strong buy’ signal on expectations of solid earnings. The German chemical giant, which went ex-dividend May 11, is said to have strong business prospects for the foreseeable future.

2. Allianz SE

Allianz, Germany’s top insurer, has had a solid 2017. The company posted net profit of €2 billion ($2.39 billion) in the most recent quarter after successfully improving performance across all business segments. The company’s global reach, which extends to North America, Asia and the rest of Europe, put it on a firm course to reap the benefits of a strengthening global recovery. The insurer is one of the DAX 30’s best dividend earners at 4.11%.

3. Daimler AG

Daimler has seen its leadership pace grow in recent years with its famous Mercedes-Benz brand battling for No. 1 spot in the luxury car market. The company is on the leading edge of innovative technologies that are making environmentally-friendly, autonomous cars a reality. Returns on sales have increased across the spectrum, signaling high demand for its vehicles. Mercedes-Benz saw a 28% increase in sales during the second quarter, thanks to an upsurge in demand from China, a country becoming more consumer-driven.

4. BMW

Sticking with the automakers, Germany’s iconic BMW brand could also bolster dividend portfolios following the election. Its current yield of 4.13% isn’t quite as high as Daimler’s, but it is coming off seven consecutive years of record-breaking figures. At the same time, its stock price remains depressed and well off its 52-week high. Solid growth prospects and an affordable price make BMW a strong play for dividend-seeking investors.


*Source: The Wall Street Journal

 
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The Bottom Line


Germany’s election result will be big news for the financial markets. Although the polls appear to show a clear-cut winner, they’ve been wrong before. Dividend investors should therefore monitor the developments closely, with a keen eye on the financial tickers.

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