European equities have long appealed to income investors, but the opportunity is becoming broader than dividends alone. Stuart Brown, co-manager of the BlackRock Continental European Income fund, joins the FundCalibre team to discuss improving earnings and dividend growth across industrials, banks and utilities, alongside the structural themes supporting them, including electrification, energy security and supply-chain investment.
The discussion also examines regional portfolio positioning, the resilience of European companies amid geopolitical disruption, and selective opportunities in defence.
Finally, it considers why share buybacks, improving business fundamentals and more shareholder-friendly capital allocation could strengthen Europe’s total return potential.
Why you should listen to the interview: This interview challenges the idea that Europe is simply a high-yield, low-growth market.
It explains how industrial investment, healthier banks, changing utilities and shareholder-friendly capital returns are reshaping the opportunity set, while offering a practical look at how active managers navigate politics, geopolitics and uneven sector prospects over time today.
This interview was recorded on 22 July 2026. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Europe’s dividend opportunity is broader than it used to be
“Europe has been considered an attractive market for income investors for a long period of time. That comes down to a broad culture of paying dividends and, to some degree, a dividend yield which is generally attractive relative to other markets. Those things remain the case.
“What makes Europe particularly compelling, from our perspective and from an income perspective more broadly, is that total returns are broadening out beyond just the dividend yields.
“We are seeing the earnings outlook, and dividends as a result, improving quite materially in a number of areas. Historically, we would have thought about sourcing our resilient dividend growers within sectors like consumer staples, healthcare and perhaps the software and data services parts of the market.
“We think those parts of the market are facing more challenges than they have historically, and where we are finding ideas that can compound dividends over time is slightly different from the past.
“We are seeing lots of opportunities within the industrial space: many very high-quality companies, well positioned in their industries, with attractive returns, economics and growth outlooks which are materially better than in the past.
“We think about areas like electrification, energy security and supply-chain resilience investments. We also find quite a lot of opportunities within the financial space. The banks are in a really healthy position and are moving into a position where we think they can continue to deliver sustainable earnings and, as a result, dividend growth.
“Lastly, there is the utility space. It has a challenging long-term picture, but we think things have changed quite materially in the last few years, shifting us more towards an environment of sustained dividend growth going forward.”
Why falling interest rates may not derail European banks
“European banks have been a success story for equity investors over the last number of years. The backdrop has been a picture of improving interest rates, but also improving market structures, which have allowed banks to earn an improving return on equity and deliver strong earnings and dividend growth. That environment has been driven very much by retail banks.
“If we take Spain as an example, we have seen a market that has consolidated meaningfully in recent years. The top five players went from less than 50% of the market to around 80% in 2024. That has allowed attractive pricing and an ability to improve net interest margins and returns.
“Through that period, these companies have also had strong capital positions and valuations trading below book value, which meant they could return attractive dividends and, crucially, conduct share buybacks for investors as well.
“From here, the investment case for European banks is changing. One thing I would emphasise is that it is not just about interest rates. Interest rates are one piece of the puzzle. What we are seeing is that the earnings drivers are broadening.
“We are seeing signs of volume growth and companies, at the margin, putting their balance sheets to work. Loans and deposits have moved into an environment of growth. Many of the companies we invest in have broader fee businesses, insurance and wealth management, which offer another earnings stream.
“Lastly, there is AI. There is a lot to debate around AI adoption in the market more broadly, but we think banks offer one of the clearest opportunities to adopt AI and improve cost-to-income ratios. That should be a tailwind to earnings going forward. We think valuations look really attractive. Earnings growth is, if anything, more balanced and sustainable, and it is not just being driven by the interest-rate outlook.”
Why geopolitical risk can create opportunities
“Geopolitical uncertainty will continue to be a feature. The list of things that markets and companies have to deal with is quite long and is often presented as a risk, whether that is the AI race itself, ongoing conflicts, trade policy or an evolving relationship between the US and Europe. That is before we get onto a busy political calendar within Europe over the next 12 months in terms of elections.
“One point I would make is that geopolitics is often referred to as a risk, but it can very much present an opportunity.
“Firstly, geopolitics can present buying opportunities in companies that we really like but which are sold off unduly. We have taken advantage of a number of these opportunities, whether that was around Liberation Day last year or some of the concerns around the Strait of Hormuz crisis this year.
“Secondly, geopolitics changes the outlook for investment. Particularly from a capital-expenditure perspective, we see signs of trade tensions driving supply-chain investment, where companies want to reassure or solidify their supply chains.
“Geopolitical risk has gone from being an occasional external risk to something that companies and investors are managing on a day-to-day basis, and they adapt. We have gone from crisis to crisis over the last six years. We had COVID, the 2022 energy crisis, ongoing trade tensions and now what we are seeing in the Middle East. Companies adapt.
“One thing that is really important to us from an investment-process perspective is resilience, and I think that is ever more the case now. Understanding cyclicality, the nature of recurring revenues, diversification and how companies are managing crises is a really important thing to focus on.”
Conclusion: European equities continue to offer attractive income, but their appeal increasingly extends to improving earnings, dividend growth and share buybacks.
This discussion highlights how stronger banks, infrastructure-like utilities and industrial investment are changing the market’s return profile. It also shows why geopolitical uncertainty can create opportunities as well as risks.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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