Dividends are back in Europe

Posted on Nov 8, 2020 at 8:33 am

End of the dry plan for shareholders? Faced with the scale of the crisis, nearly 4 out of 10 companies in the European STOXX 600 index had given up paying dividends in the spring. A few months later, more and more of them are reinstating them or considering doing so, almost a third according to data compiled by Barclays in early November (the study covers three quarters of the Stoxx index 600). In France, for example, Orange reserved a pleasant surprise for its shareholders during the presentation of its results. The incumbent has decided to bring its dividend back to its pre-crisis level, 70 cents per share, for 2021. He had reduced it by about a third in the spring.

“Companies are confident in their ability to operate despite the health context”, explains Emmanuel Cau, equity strategist at Barclays. “We realize that many had cut their dividend as a precaution and finally managed well the shock of March”, he adds.

Relieved shareholders

The telecoms, utilities and everyday consumer goods sectors, with incomes less affected by the crisis, are at the forefront of the movement. This is particularly the case with Bouygues. The French construction group had suspended the payment of its dividend at the height of the crisis. He finally decided to pay it at the end of the summer, however waiving the payment of an exceptional dividend announced in February.

Bank dividends at the mercy of the ECB

It remains to be seen whether this return in dividends will be sustainable. Investors are watching with concern the progression of the second wave of the epidemic. On the futures markets, they are already expecting a further drop in the amount of dividends paid in 2021. A gloom that contrasts with the optimism displayed by most companies despite the return of containment measures in Europe. “Two factors are supporting the recovery: the shock of the second wave is less brutal and more localized than in the spring, and companies are much better prepared for it”, observes Emmanuel Cau.

Last unknown: the fate of bank dividends, suspended by a decision of supervisors. BNP Paribas, HSBC and Santander have clearly indicated in recent days that they are ready to restore their dividends. The European Central Bank (ECB) had asked them to suspend them in the spring and must review its decision in December. A change of position is not obvious, according to the last words of Andrea Enria, the president of the prudential supervisory board of the ECB. Thursday, in an interview with the Belgian daily “L’Echo”, he estimated that banks could “Hope for the best, but had to prepare for the worst” with the worsening of the health crisis.

Profit sharing on borrowed time

Shareholders are not the only ones feeling the impact of the economic crisis. Profit-sharing bonuses – incentive, contribution and participation – are likely to plunge next year, their amount being dependent on the results of companies over the previous year. For the time being, the majority of SBF 120 companies have maintained their payments this year, even if it means shifting them over time. Last year, SBF 120 employees received an average of 4,312 euros, a stable amount over one year, according to the latest Erès barometer.

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