Amidst an uncertain political backdrop, dividends look set to remain an important anchor for investors in 2019, according to new analysis by Allianz Global Investors, one of the world’s leading active investment managers. Over the last 45 years, dividends have contributed to around 41% of total returns on European equities since 1973.¹
The Dividend Report 2019 which analysed dividend yield data from leading markets from around the world has shown that European companies in particular, are proving especially “pay-out friendly” by international standards. At the end of 2018, in the 45 years from 1973, their dividend yield averaged around 3.8 % across the market in comparison to 3.2% in North America and 2.0% in Asia Pacific . In Europe in 2018, the European Monetary Union average dividend yield was 3.25% and the UK came in 4.97%.
In 2019, AllianzGI experts expect that companies in the MSCI Europe will pay dividends of around 350 billion euros, meaning that European companies would once again pay out record amounts to their shareholders, around 16 billion euros (4.8%) more than in 2018.
But the report also shows that it is not only dividends that provide more stability in equity investments. High-dividend stocks seem to develop in a much less volatile manner than those of companies with lower dividend payments. In particular, the volatility of US companies paying dividends is significantly lower compared to companies without dividend pay-outs and a similar trend has been emerging for European dividend stocks since the 1990’s.
Vulnerable European equity markets
However, as the European economy threatens to weaken there is also uncertainty regarding tougher global trading conditions which are likely to further spill over into European equity markets.
The level of pay-outs is not the sole deciding factor in the fund manager's selection of stocks.
Jörg de Vries-Hippen, CIO Equity Europe commented:
"As active managers, we take advantage of downturns in the market as opportunities to buy in order to further expand promising portfolio positions. For us, continuity in dividend payments is just as important as their relative level, because a positive combination indicates a healthy basis. Such companies often prove to be stable anchors in turbulent times.”
There are currently some companies in the market with well-funded dividend payments and growth potential, even at discount prices. In this respect, there is a big focus on the European energy sector, as the massive restructuring of the sector should pay off in the foreseeable future in the form of stronger cash generation and dividends. De Vries-Hippen has considered companies in the insurance sector to be "classic dividend payers" for many years.
Commenting on the outlook for Europe, de Vries-Hippen said:
"We expect economic growth in Europe of around 1.5 % in 2019. But as the global liquidity valves close, the pressure will increase. A slowdown in the economy not only affects highly indebted countries such as Italy but reliable EU engines such as France and Germany also increasingly stutter in the face of growing domestic unrest and international disputes. The EU is vulnerable and the ups and downs of European equity markets will also depend on how Brexit finally plays out."
Hans-Jörg Naumer, Head of Capital Market Analysis (co-author of the study) summarised that:
"Dividend pay-outs act as an airbag in an investor's portfolio, which can have a particularly beneficial effect given unfavourable market conditions recently, as we’ve seen in Europe. We’ve seen that dividends stabilise a portfolio because they cushion price setbacks and generate predictable income."
For further information please contact:
Alastair Fairbrother +44 203 246 7432
Sarah Einig +44 203 246 7846
Vivi McDuell +44 203 246 7251
About Allianz Global Investors
Allianz Global Investors is a leading active asset manager with over 730 investment professionals* in 25 offices worldwide and managing around EUR 530 billion in assets for individuals, families and institutions.
Active is the most important word in our vocabulary. Active is how we create and share value with clients. We believe in solving, not selling, and in adding value beyond pure economic gain. We invest for the long term, employing our innovative investment expertise and global resources. Our goal is to ensure a superior experience for our clients, wherever they are based and whatever their investment needs.
Active is: Allianz Global Investors
1) “Capital Income with Dividends”, chart 4a: Dividends – a stabilising factor for investors, P.7
2) Data comes from MSCI Europe
3) Allianz Global Investors’ 2018 forecast (323 billion euros) was slightly exceeded in MSCI Europe according to Thomson Reuters. Currency fluctuations are included in the forecast deviations.
4) based on the 36-month rolling standard deviation as a measure of price fluctuations
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Equities have tended to be volatile, and do not offer a fixed rate of return. Dividend-paying stocks are not guaranteed to continue to pay dividends. Foreign markets may be more volatile, less liquid, less transparent, and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors Distributors LLC, distributor registered with FINRA, is affiliated with Allianz Global Investors U.S. LLC; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions in Switzerland; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan];and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan.