Emerging market dividends expected to rise 6%

Despite turmoil across the emerging markets this year, the bright outlook for dividends across the main EM index could attract a new kind of investors to the shares.

• Dividends paid by constituents of the MSCI Emerging Market Index are expected to rise by 6% in the coming fiscal year to $238.8bn
• Chinese domiciled shares will pay over a fifth of all dividends in the index
• The commodities reliant counties of Brazil and South Africa are forecast to deliver large dividend increases

Markit has produced it first report forecasting dividend payments by constituents of the MSCI Emerging Market Index.

Return to growth

The last fiscal year saw MSCI constituent countries increase their pay outs after trimming them slightly over the 2012 fiscal year.

This trend is excepted to continue in the current fiscal year with constituents forecast to pay an aggregate $238.8bn in dividends, representing a 6% increase on the previous year’s total.

This rise in payments is not universal across all countries however as the nature of global emerging economies shapes dividend policies across the 22 constituent countries. Overall, the majority of countries which make up the MSCI EM index are expected to boost payments with only four countries expected to cut their dollar denominated payments from the previous fiscal year.

China on top

Chines companies are largest single dividend payers in the MSCI EM index. The country is expected to pay 21% of all dividends made by the index with an aggregate of $51.8bn. This is driven by the fact that China has the top two largest dividend payers in the index, China Construction Bank and China Mobile which are forecasted to make a combined $19.6bn in payments.

China mobile is expected to reduce its payment by 10.7% on the previous fiscal year however as increased competition eats into its profits, with the pay-out ratio forecasted to hit 43%, payments are expected to fall in line with profits.

However, payments made by Chinese companies are expected to lag behind the rest of the index with a rise of only 3% from last year’s levels.

This is a sharp fall on last year’s 20% increase in payments as the country aims to bolster its banks which had long been at the forefront of dividend growth. Real estate firms are also forecasted to see a fall in aggregate payments as the government’s efforts to cool its real estate market starts to hit profitability.

Top rises

Investors looking for dividend growth ought to focus on the Mediterranean nations, as Greece and Turkey are forest to post the largest increase in payments from the previous year.

Greek dividends are expected to grow by 350%, though the aggregate payments made by Greek firms are still very low at $535m. The highlight is Hellenic Telecom which is expected to make its first payment since 2011.

Turkish companies, which are much more active dividend payers, are expected to post the second largest increase from the previous year with a 52.6% rise which takes the county’s aggregate payment to $5.6bn.

Highlights include a special payment from Turkcell and rises in bank payments with Yapi Ve Kredit and Turkish IS both expected to grow payments by more than 20% despite the recent economic challenges.

Commodities heavy countries, long the backbone of emerging markets, are also expected to increase payments. To this extent, Brazil and South Africa are expected to increase their payouts by 13.6% and 5.8% respectively.

Note that the disparity between the two countries is partly driven by currency swings as the Brazilian Real has seen a stronger rebound from last year’s lows against the dollar than its South African counterpart.