Strong dividends tipped for Europe as UK payouts bounce back

Strong dividend growth is expected in Europe this year and 2012, and already occurring in the UK where income distributions are returning quickly and strongly from the financial crisis.

In the UK, some companies more than doubled their payouts recently, while others recommenced distributions.

Last week AstraZeneca and British American Tobacco both boosted dividends by 15%, while Croda and Renishaw each noted growth of at least 100%. Those recommencing distributions included ITV, CML and National Express.

The faith in dividend growth in the UK was rattled when BP, traditionally one of the market’s stronger payers, suspended its distributions after its three-month Gulf of Mexico disaster in 2010. However, in February it announced it would resume distributions.

A recent study by Capita Registrars found that in the second quarter UK firms paid more out as dividends than any time since. The £19.1bn distributed last quarter was 27% than a year ealier.

Over the whole first half of 2011, dividends rose 19% year-on-year to £34.1bn. This was the largest increase in absolute terms since 2008, and the largest proportional increase since data was first compiled back in 2007.

Capita highlighted miners as responsible for much of the recovery, as booming commodity prices allowed them more than triple dividends compared to the second quarter last year.

In Continential Europe, Nicolas Simar, ING Investment’s head of equity value investments, said dividend growth of 16% is realistic for this year, followed by another 14% in 2012.

He noted companies have not re-grown their dividends as quickly as their earnings have bounced back since the crisis.

“Dividend growth has only turned positive in the past 12 months, while profit growth adds up to nearly 30%. For this reason, and due to the dynamic dividend prognoses, ING IM feels there is all sorts of scope for growth. Over the past 20 months analysts have consistently raised their dividend prognoses, even as profit growth increasingly moderated.”

During the crisis dividends were “radically cut” by businesses preferring to hoard cash, “but since then companies have operated profitably once more. Globally, trailing earnings have grown 50% since the trough, and this year they will certainly surpass the record year of 2007,” he said.

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