Dividend hunters toast earnings season surprises

Mon Feb 17, 2014 8:22am EST
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By Atul Prakash

LONDON (Reuters) - Halfway through Europe's company earnings season, investors who made record bets in search of dividends have cause for celebration, though they should prepare for disappointment from some traditionally high-paying sectors.

Global miner Rio Tinto (RIO.L: Quote) raised its dividend by 15 percent last week, and French oil firm Total (TOTF.PA: Quote) joined in with a 3.4 percent rise, while French bank BNP Paribas (BNPP.PA: Quote) said it planned to boost its dividend payout ratio to around 45 percent of earnings by 2016 from 41 percent.

That would have been welcome news to those who ploughed more than $1 billion into European dividend funds in January, the biggest monthly sum since the middle of 2011, EPFR data showed.

Investors have been lured to these funds by predictions that aggregate dividend levels in Europe will return to growth this year after holding flat for two years.

According to Markit data, dividends for MSCI Europe (ex-UK) .MIUG00000PUS companies will rise 5 percent to 183 billion euros ($250 billion) in 2014 and to almost 200 billion euros next year. More than half of the firms are expected to raise dividends this year, with only 13 percent seen likely to cut.

Investors have therefore pushed Euro STOXX 50 dividend futures for 2014 and 2015 up 2.6 percent and 4 percent, respectively, this year, Thomson Reuters data shows.


However, shares in defensive sectors like telecoms and utilities that generally pay good dividends could underperform the wider market as higher debt levels, further infrastructure investments and a possible rise in acquisition activity hinder their ability to return cash to investors, analysts said.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) February 13, 2014. REUTERS/Brendan McDermid