European dividends march upwards

After a strong fiscal 2013, European dividends are poised to continue their momentum into 2014. We assess the region’s prospects following the announcement of full year results.

• MSCI Europe (ex UK) companies are expected to grow payments by 8%
• FTSE 350 payments are also forecast to increase real terms by 4%
• Banks across the region are boosting dividends after the economic crisis

Europe

European shares lead our recent global dividend global dividend reports with constituents of the MSCI Europe (ex UK) and FTSE 350 indexes forecasted to make nearly $400bn of combined dividend payments in the coming fiscal year.

This total is driven by a large surge in mainland payments as constituents of the MSCI Europe Index constituents are forecasted to make €198bn of ordinary dividend payments, an 8% increase on the previous year. 55% of constituents are forecasted to boost payments from fiscal 2013, a 7 percentage point increase from last year.

On the negative side only 11% of companies are forecasted to cut and no constituent is forecasted to suspend payments, as opposed to last year when 15% of MSCI Europe constituents either cut or suspended payments.

On a sector basis, Banks are the standout sector with €29.3bn of aggregate payments, nearly €10bn more than the second highest paying sector, industrial goods and services. This represents a 19% boost on the previous fiscal year as banks across the region build on last year’s resumed payments.

Strong increases include UBS, Societe Generale, Credit Agricole and Danske Banks which are all forecasted to grow their payments by more than 50%. The sector includes Spanish giant Banco Santander which is expected to grow its payments to shareholders by 11.8% this year to just shy of €7bn, note that the company’s scrip dividend payment makes it such that the per share payment will be flat for the year.

Investors looking for yield in the index ought to focus their attention on the real estate sector as it has a 12 month forecasted yield of 5% as many of its constituents have generous 80% pay-out policies.

UK

UK companies are forecasted to also post a healthy growth in dividend payments over the coming fiscal year as constituents of the FTSE 350 index are expected to pay £75.1bn of ordinary dividend payments, a 4.4% boost on the previous year.

The current fiscal year also has index constituents making over £15bn of special payments which take the current forecasted fiscal year total 19% above last years’ aggregate payment. It should be noted that this year’s surge in special is driven by Vodafone’s large return of capital payment.

Sector wise, oil and gas firms will make the largest contribution to this year’s total with £13bn of forecasted payments, largely made up by majors BP and Royal Dutch Shell which will make up over half of the sector payment. Interestingly, the majors currently have a forecasted 12 month dividend yield of 5.2%, more than two and a half times the sector average of 1.8%.

The outlook is less positive for the services companies as the majors scale back CapEx. As with the big mining companies the oil majors have been under pressure to scale back spending and undertake divestments in order to return cash to shareholders.

The largest forecasted rise in payments is expected to come from banks which are forecasted to pay £10.6bn in the coming fiscal year, an increase of a third from the previous fiscal year. While over 60% of the sector total will come from HSBC Holdings which is forecasted to boost its payments by over 8%, the resumption of payments form Lloyds Banking and more generous pay-outs from Barclays will see the sector yield 3.3%.