7 European Stocks Paying You Cash

It's easy to count the ways in which investors have gotten spooked in 2010. In no particular order, ordinary folks looking to the market for wealth have had to deal with the sovereign debt crisis in Europe, the mysterious "flash crash" in May, the BP oil spill, and concerns about slowing growth in developing markets like China. With all that turmoil, it's no surprise that the market has been flat.

But let's not complain too much; in Europe, things are much worse. After the massive bailout orchestrated for debt-ridden Greece, downgrades swept through countries like Portugal and Spain. Governments then demanded banking stress tests, as creditors stopped trusting big financial institutions' balance sheets. True, things have calmed down a bit, but most of the European indices are still slightly down on the year. ETFs like Vanguard European ETF and the iShares S&P Europe 350 Index have lost more than 5%.

For some investors, there's an upside to all this mayhem. Contrarians often cherish uncertain times like these, when the shares of many solid, quality stocks get beaten down for no good reason. In particular, as prices plunge, dividend yields go through the roof. That's exactly what we've seen over the past eight months -- many European dividend yields have gone sky-high, luring investors who are seeking not only income, but also the potential for value and growth.

Unfortunately, some of the companies now nursing battered shares probably had good reason to drop. If you're too enticed by the thought of amazing yields, you may be forgetting that high dividends can be dangerous if you're not careful. Remember that a low payout ratio will help ensure the sustainability of a dividend payment, and that looking at a company's past may give you insights into how likely they are to cut a dividend in the future.

To help your search for high-dividend stocks, I ran a screen strictly for European stocks with yields greater than 2% and payout ratios below 50%. Below are the top seven companies from my screen, listed in rank order.

*Source: Capital IQ, a division of Standard & Poor's. Dividend yield based on most recent dividend. Payout ratio is based on trailing 12 months.

The Foolish bottom line
With many experts already calling for bond returns to decrease over the next decade, savvy investors have started looking to dividend stocks for both growth and income. It's an excellent strategy to pursue, but in the quest for high yields, you've got to keep your head on straight. Remember to do your own due diligence before you buy any of the stocks above, or any other seemingly tempting dividend candidate.