Dividends are an important source of income and continue to help investors offset to some extent the volatility in investment returns, according to the latest report from Allianz Global Investors, one of the most important active investment fund managers in the world.
Jörg de Vries-Hippen, CIO for Equities at Allianz Global Investors, estimates that European dividend payments will reach a record total of 323 billion euros in 2018, nearly 23 billion or 7.7% more than a year ago. He believes dividends are one of the reasons why European companies are particularly attractive.
“We have not had such an optimistic outlook as we have now in 2018 for quite some time. The economy in Europe is doing well and business profits are expected to continue to improve, which has a positive impact on dividend payments and payment ratios. In general, we expect profit growth of around 8%, perhaps somewhat lower if the strength of the euro persists. Last year, 80% of the profits were distributed as dividends, more than ever before. This means that companies are no longer willing to grow at any price. More attention is being paid to the interests of shareholders in terms of the use of corporate profits.“
Where will the best dividend yields be in Europe?
The highest average dividend yield in Europe in 2017 was in Portugal with 4.47%, followed by Spain (4.07%) and Finland (4.02%). The UK, traditionally the most important market for dividend “hunters” in terms of volumes, was in fourth place with 3.98%. In Germany, the average dividend yield was 2.51% in 2017.
“These averages are an important point of reference and reveal a lot about the valuation of each market. For me, the decisive factors are the individual amount of the dividend and how a company can translate the estimated cash flows into a sustainable dividend policy. Companies that meet our quality requirements in both aspects, can be found in almost all European stock markets. Particularly at this time, oil, telecommunications and insurance companies are attractive values from the perspective of dividend yield.”