Dividend forecasts should lead to recovery in Continental
Europe
26 May 2009
Written by Sophie Baker
Continental Europe is showing signs of a recovery with increases
in European stocks dividend forecasts and robust corporate balance sheets,
says Ignis Asset Management.
Olly Russ, manager of the top-quartile Ignis Argonaut European Income
Fund, is confident that current conditions are favouring Continental European
equity income stocks, but warned that dividends will remain under pressure
for the rest of the year. He said to expect cuts of up to 20 per cent
at the market level.
“There are still selected opportunities in the Continental European
banking sector where some of the more conservative European banks, notably
the French, have maintained their dividends, albeit at a lower level,”
commented Russ.
“Corporate balance sheets in Continental Europe are relatively robust
with approximately a fifth of companies having no debt, or even net cash
holdings, which will support dividends if top line earnings fall. Outside
of a handful of UK mega-cap stocks, the UK market looks relatively geared
in comparison.”
The Argonaut fund was cited as having examples of positive positions,
with Telefonica pledging to increase its dividends next year as cash generation
at the Spanish company continues to exceed forecasts. Portugal Telecom
also features in the exposure portfolio, which recently upgraded dividend
forecasts to nine per cent. “These companies represent the polar
opposite to BT in the UK, which recently announced significant losses
and slashed its full-year dividend,” he added.
Looking towards 2009, Russ said this will be a challenging year from the
perspective of dividends, but the green shoots of recovery are emerging.
However, he believes the long-term outlook is promising for both dividend
growth and capital gains. “The worst appears to be over for Continental
European equity investors. While the significant returns will come on
the capital side, at least in the short-term, the income story is still
very much intact in Continental Europe.”
