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SLI’s James confident on European dividend growth despite recent big name payout cuts
by James Phillipps on Mar 12, 2013 at 14:52
The outlook for European dividend growth remains robust despite a number of high profile firms cutting their shareholder payouts in recent months, according to Standard Life Investments’ Will James.
A spate of cuts across the telecoms sector late last year has been followed by several blue chips slashing or dropping their dividends this year, with Lufthansa among the latest names.
But looking beyond the headlines, Citywire A-rated James, who manages the £1.2 billion SLI European Equity Income fund, believes there are still plenty of attractive opportunities for yield hungry investors.
‘We have seen evidence that dividend growth appears reasonably healthy despite a number of issues in traditional income paying sectors, particularly telecoms,’ he said.
‘We have seen KPN, Telecom Italia, France Telecom and Deutsche Telekom cut their dividends and Telefónica stopped paying dividends in this fiscal year. We have also seen a number of problems in the utilities space, such as Eon, but it is not all bad.’
Cable market M&A
One telecom James is happy to hold is Swisscom, which is yielding 5.3%. Although it has maintained rather than grown its dividend over the past year, he describes it as well positioned in its domestic mobile market. He points to its Italian fixed line business, which is growing market share aggressively. It could be a potential takeover candidate, given the surge of M&A activity in the cable market.
James holds a blend of high yielding stocks, companies with growing dividend streams and turnaround stocks that have triggers to be upgraded.
In the growing dividends bucket, he highlights Novo Nordisk, which raised its dividend by 29% year-on-year at the start of 2012. Although it only yields 2% at present, if it continues to grow its dividend at the same rate over the next two to three years he said he will be ‘very happy’.
Similarly, Swiss agribusiness giant Syngenta has raised its payout by 19% to 2.5%, oil major Eni is growing its dividend at an inflation-beating 4% per year, while Swiss bank Swedbank surprised on the upside with a 46% uplift.
James is also playing a number of turnaround stories, including French car manufacturer Renault. ‘It has a big shareholding in Nissan, which is a very well-run business and if you just run the valuation against this shareholding you see that Renault’s own European business has a negative value subscribed to it,’ he said. ‘The business is turning round and at 5x earnings, we think the market is undervaluing it.’
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