Europe’s cash-rich companies return to dividend culture

European asset managers have typically promoted equity income funds since the global financial crisis as a safer, ‘cushioned’ way for nervous investors to get exposure to sharemarkets in a climate of macroeconomic shocks.

But the kind of dividend growth occurring through the Continent and beyond could make income-focused equity strategies increasingly attractive in their own right.

Some managers argue, with statistical support, that investors who specifically identify companies paying and increasing their dividends will harvest greater profits in the long term, than investors who adopt less targeted approaches to equity investing.

Whether investors want dividends for safety or for outright returns, the climate for their search in Europe is improving.

Continental companies grew payouts by about 10% last year as domestic and emerging market demand for their products remained generally strong, says Stephen Macklow-Smith, manager of the JPMorgan European Investment Trust.

This growth is a continuation, and magnification of a longer term trend among European companies, which increased dividends on average by 4.9% a year since 1970.

This was rudely interrupted by the financial crisis, when companies cut sometimes sharply. But Macklow-Smith suggests the upswing since then is not over, and this year European investors could expect distribution growth similar to that of 2010.

On top of this, he notes European equities offer yields exceeding 3% – currently around 3.6%.



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