Dividends are breaking records, but growing at a slower pace

Posted January 26, 2023, 1:10 p.m

Always more. Despite the worsening economy, European companies are expected to pay out 387 billion euros in dividends in 2023, the third record in a row, according to AllianzGI’s annual survey of asset managers. A generosity that speaks to the good financial health of the listed groups of the Old Continent. On the Paris Stock Exchange, members of the CAC 40 index could post historic gains in 2022 despite the energy shock hitting Europe.

However, shareholders could be forgiven for not seeing this as cause for celebration. According to figures published by AllianzGI, European dividends amounted to 377 billion in 2021 and 382 billion last year. So while the manager was hoping for a 9% jump last year, they are heading for a second year of sluggish growth of just over 1%, well below inflation in Europe. In other words, shareholders lost purchasing power last year and this trend is likely to continue this year.

Loss of purchasing power

Even limited dividend growth is clearly good news for investors. These recurring payments are especially appreciated when markets are down, as they were last year. They help limit breakage. For example, if dividends are taken into account, the CAC 40 index limited its losses to 6.7% in 2022. Without this support, its losses are equal to 9.5% for the year.

The stability of dividends in the face of falling prices has made it possible for dividend yield, that is, the ratio of dividends to share price, to start rising again after several years of decline. In France and Germany, it fell from around 2.5% in 2021 to 3% and 3.5% last year, respectively. It increased to 4% in Spain and 5% in Italy. It currently remains above risk-free rates, i.e. the yield offered on these countries’ 10-year sovereign debt.

The end of the TINA effect

But last year’s sharp increase in interest rates threatens to upset this balance. A recovery in stock indexes should push dividend yields down again, which could fall well below the risk-free rate, even if dividends are expected to increase very modestly. A small revolution in the investment world, reflecting the upheaval in the markets last year.

“The end of the TINA effect,” ABN Amro’s Christophe Boucher noted recently. The acronym TINA, which stands for “no alternative” in English and stands for risk-taking, has been the mantra of investors in recent years. In an environment where interest rates were close to zero or even negative, the only hope to grow your savings was to invest in stocks. This dogma “has guided the portfolios of individuals and institutions since 2008,” said the economist. But with interest rates rising, alternatives to stocks are once again looking attractive to investors.

Shell, the European dividend champion

Not all companies follow the same dividend payment policy. Many companies in growth sectors that require significant investment pay little or no dividend, such as Worldline in France. The most generous companies can be found in the most mature sectors of the economy. At the top of the list, we see many oil companies, such as Shell, which distributed an average of 10 billion euros to shareholders annually over 5 years, which is a record amount in the Old Continent. Mining company Rio Tinto comes in second place with an annual average of 8 billion, followed by Roche (7 billion), Nestlé (6.8 billion) and Novartis (6.1 billion). In France, the oil and pharmaceutical industries are also rewarded, ahead of TotalEnergies (4.3 billion), Sanofi (2.6 billion) and Engie (2.1 billion).

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