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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.’
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on Jul 24, 2014 at 10:59