Spanish stocks for conservative investors

Spanish stocks for conservative investors


At university, finance students are told that conservative investors should not have stocks in their portfolios, and if they do, it should represent a small portion of the total value of the portfolio in order to avoid volatility. The type of stocks chosen for a conservative portfolio will be from stable value companies. The definition of value company is a bit controversial but in general all these companies pay dividend and are in ruling sectors of the economy such as energy, construction, communications, banking…

There are many ways we can invest our money. The stock market is one option, generally seen very risky by the general public. But it offers many advantages, as it is easy to enter and offers good returns in the mid-long term. The most attractive  market in Europe to invest in nowadays is the spanish index IBEX-35. Some stocks start to look cheap, due to the global panic started in Asia, all European markets have been penalized and sales have been the protagonists during the first month of the new year. Companies like, Repsol, Telefonica, Endesa, Mapfre, Abertis and Enagas are all listed in the spanish index ibex-35.

The price of Ibex-35 has fluctuated between 6,500 points and 15,500 since 1991. But for the last couple of years has been moving between the 8,000 and 11,500 points. Never being able to overtake that barrier above the 12,000. The Spanish economy is very dependent on oil. Spain has to import 100% of its demand. With the barrel of Brent below $40, pushing all transportation costs down, and profit margins up, all these multinational corporations listed in Ibex-35 maybe have lost in price due to some generalized panic in the markets… But are solid companies with a high volume of sales and some have announced an upward revision of the dividend for 2016.

spanish stock marketWhat returns can be expected from the shareholder?

The companies mentioned before offer a dividend return between 5% and 10% for 2016. 27,000 million Euros in dividends are expected to be given by this index as a return to their shareholders. This year, some companies have taken up the payment and others have confirmed a successive increase in the dividend during the coming years.

Good tone, in a context of recovery in corporate earnings supported by a slight acceleration in overall growth, oil prices still low, the euro has been depreciating even in a more favorable conditions for spanish exports and prompted by the expansionary monetary policy of the European Central Bank. Ensure that the dividend yield continues to pose a major support to equities.

Dividends will be between 7% and 9% until the international funds see these opportunities to make a profit from reliable companies paying dividends. Conservative investors value the importance to have a medium / long term portfolio, with the objective of having recurrent financial income, in this case through dividends.

Searching solid investments

As human beings, we never abandon any possible way of making a profit, but when the market is so volatile as we are experiencing these times, it is not a wise advise to speculate with some risky stocks. So to choose a good stock to invest in, we need to look at some important things first.

It is essential that companies have the capacity to generate cash so their monetary compensation is sustainable in the future. The payment if the dividend is in cash (by dilution that involves payment scrip, which gives the option to charge in securities or cash). We have to focus on stocks whose dividends are sustainable, due to good performance of its recurring suitable activity and commitment in its policy of shareholder return with a strong financial structure.

spanish wind power

At least stable, sustainable and increasing dividends over an extended period are the key to choosing companies according to their dividends. The spanish stock exchange market is a good place to invest if looking for dividends. It is one of the most profitable index in the world, with an average return of around 4.5% in spanish ETF’s.

Repsol, Telefonica, Endesa, Mapfre, Sacyr, Abertis, Enagas, Gas Natural and  Acerinox lead the ranking with dividend yields of between 5% and 10.4%.  So now that their prices in the market have fallen way below their average historical price we think it is a good time to enter these positions as in a long term investment.