European stocks are set to pay out a record €323bn (£286bn) in dividends this year, according to investment manager Allianz Global Investors.
At 7.7 per cent more than last year, Allianz believes the rise in dividend payouts means corporates are paying more attention to shareholders’ interests.
“We haven’t had such an optimistic outlook as we do going into 2018 for quite some time,” said Jorg de Vries-Hippen, chief investment officer at Allianz’s equity Europe team.
“The economy in Europe is running well and corporate profits are expected to continue to develop positively, which has a positive impact on companies’ dividend payments and pay-out ratios. Overall, we expect earnings growth of around eight per cent, perhaps a little lower if the euro strength persists.”
In the UK, Allianz’s Simon Gergel predicted that insurance companies like Prudential and Legal & General and banks like Lloyds and Barclays should provide good dividend growth.
“Elsewhere, higher commodity prices and efficiency savings are supportive of the large payments from the big oil companies and the mining sector,” he added.
Last year, the highest average dividend yield – or how much a company pays out each year relative to its share price – was not found in the UK, which has traditionally been the most important market for dividend hunters in terms of volume of stocks.
Instead, Portugal offered the highest dividend yield at 4.47 per cent. Spain and Finland followed, while the UK ranked fourth at 3.98 per cent. Germany was way down in 11th place, with 2.51 per cent.
“For me, decisive factors are the individual amount of the dividend and how a company can translate expected cash flows into a sustainable dividend policy,” said de Vries-Hippen.
“At the moment, oil, telecoms and insurance stocks are attractive from a dividend perspective.”
Although the average annual share price performance for a stock over a five-year holding period might be negative, dividend payments often contribute positively to the performance of equities.
According to Allianz’s analysis, dividend payouts over the long term account for around a third of total returns.
Dividends contribute most to annual performance in Europe, at 38.2 per cent, followed by North America and Asia Pacific (excluding Japan).