European dividends improve after pandemic

European dividends, which suffered major cuts and suspensions last year amid the pandemic, are quickly returning as stocks make solid gains across the region.


MSCI Europe Index

brought in around 15% this year as of June 30, including dividends, roughly the same as the

S&P 500

index performance. The European index recently lost around 2.5%, compared to 1.4% for the S&P 500.

“Dividends are back, and in some cases they are coming back in force,” says Giorgio Caputo, portfolio manager of

JOHCM Global Income Generator

funds (ticker: JOBIX). “You had dividends and performance. ”

Recent stock market gains have not been limited to continental Europe. the

FTSE 100,

an index that tracks large companies in the UK, has returned around 11% this year. It recently yielded 3.3%.

Learn more about the return from Europe

“You can get fantastic companies with much higher returns than in the US at better valuations,” says Sam Witherow, portfolio manager in global equity income strategies at JP Morgan Asset Management.

Witherow points out that the

JPMorgan Income Generator

(JNBAX), which he helps manage, has increased its weight in European equities over the past year, reflecting a “disproportionate opportunity today in European income equities”.

The global equity income portion of the fund he helps manage has a weighting of around 40% in Europe, up from almost 30% in March 2020.

One important reason that yields are often higher in Europe is that companies there tend to favor dividends over share buybacks, unlike many US companies.

Note: Data up to June 30

Source: Bloomberg

Another big distinction between the United States and Europe last year was the dividend policy on the part of regulators. There were various “blanket bans on banks and insurers” to prevent them from paying dividends, enacted by regulators, including the European Central Bank and the Bank of England, Witherow says. And in other sectors, he adds, there were “implicit bans on many companies that received government support.”

In contrast, the major US banks halted buybacks in March 2020 but continued to pay dividends, although they were capped. The Federal Reserve has lifted these restrictions.

Among the major European banks that had to suspend their dividends last year are



BNP Paribas

(BNP.France), and

Agricultural credit


However, these three banks have restored their dividends, but not to previous levels in all cases. European and UK companies tend to pay their dividends once or twice a year, not quarterly, as most US companies do.

In the meantime, investors are awaiting regulatory approval that will give these European banks more leeway to increase their dividends. “The banks have a lot of capital,” says Caputo, adding that “the picture this time is much better than during the last crisis” in the early 2000s.

Yet compared to US companies, European companies had a much deeper hole to dig in terms of dividend cuts last year. Many U.S. companies have cut or suspended their payouts, but S&P 500 dividend payouts were up about 1% last year from 2019 levels.

In Europe, the damage to dividends was much more serious. Overall payments have fallen from around 35% to 40% in a “pretty shocking slump,” as Witherow puts it.

His company, however, expects European dividends to grow at an annual compound rate of 11% through 2025, compared to 8% for US companies.

Caputo says many dividend payers in Europe, including industrial companies and utilities, are benefiting from a green initiative that helps fund companies like renewables through bond issuance.

“You see a very good alignment between typical European dividend payers and what’s going on economically,” he says.

Concrete example :


(ENEL.Italy), a multinational public service based in Italy. The stock, which returned around minus 3% this year, was recently returning around 4.7%. It is a leader in the field of renewable energy, said Caputo, adding: “It has an attractive yield, an excellent opportunity for growth and a pleasant and sustainable income.”

Another of the holdings of his fund is


(LIN), a UK-based company which manufactures and distributes various industrial gases. Its assets include a network of hydrogen pipelines.

The stock, which has returned around 11% this year, returns around 1.5%, which is rather low. But “as Europe invests more and more in hydrogen to decarbonize itself, Linde is incredibly well positioned to increase its dividend over time,” said Caputo.

Witherow, meanwhile, says a category of businesses to consider is “businesses that have actually gone well thanks to Covid.”

One is

LVMH Moët Hennessy Louis Vuitton

(LVMUY), which returns around 1.2%. The company, which focuses on luxury brands, cut its dividend last year, but then raised it earlier this year to 2019 levels.

Witherow also points out

Novo Nordisk

(NOVO.Denmark), a Danish pharmaceutical company with a recent return of around 1.7%. He says the company can increase that distribution by nearly 10% per year, thanks to its growing franchise of obesity drugs. The company, for example, recently received approval in the United States to market the drug Wegovy, currently used for diabetes, for weight control.

One area where Witherow is more bearish is oil and gas. He expects many of these companies to focus the extra cash flow that comes with the recovery on paying down debt, investing in renewable energy projects, and buyouts. But its overall outlook for European dividends is bright.

“The harder they fall, the more they bounce,” Witherow says.

Write to Lawrence C. Strauss at [email protected]

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