Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at http://citywire.co.uk/wealth-manager/article/a756055

Europe out? Why you should consider buying the British discount

by David Campbell on Jun 10, 2014 at 13:55

The second quarter will also arguably be more significant as an indicator of how euro corporates handle weaker-than-expected earnings.

‘With more than three fifths of European dividends paid in the second quarter, Q1 is relatively unimportant,’ said Henderson in its Global Dividend Index report in May.

High payouts but stronger earnings

While few investors would cheer the payment of uncovered dividends, Evans pointed out there was a historically high correlation between European companies that did so, and companies that then went on to report much healthier metrics in subsequent quarters.

‘Basically, companies will be comfortable in carrying a higher payout if they see the possibility of stronger earnings growth ahead of them,’ he said.

Focusing on the index level also ignored the relative diffusion of European dividend payments – a factor that could be considered both a blessing and a curse.

The spread of contributing companies presented challenges as it made it harder to capture yield beta, but also excluded the UK’s stock concentration risk, said Alice Gaskell of the BlackRock Continental European Income fund .

The top 10 dividend payers in the UK account for 56% of all dividend income Gaskell said, compared with just 23% in Europe. ‘We have avoided the areas of the European market where dividend risk is higher (such as banks), our investments in infrastructure and real estate have benefited both from an improving European economy and lower political risk.’

Speaking at a dinner to mark the launch of his independent fund business last month, Neil Woodford pointed out that single-stock dividend risk was rising sharply in the UK, with two of the biggest contributors, BP and Shell, under pressure from lower oil and higher exploration costs.

‘They are two very stressed organisations and I do not find them terribly appealing,’ Woodford said. ‘I will not own them until they are much better value than they are now.’ 

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

Investing for income in a changing environment


With talk on interest rates on the horizon, our latest roundtable debate covers income investing against a changing backdrop

More about this:

Look up the funds

Look up the shares

  • Accor SA
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • SAP AG
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • BP PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Royal Dutch Shell PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Alice Gaskell
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Neil Woodford
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Archive

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet