Vaccine promise stirs European dividend payout hopes

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In this news, we discuss the Vaccine promise stirs European dividend payout hopes.

LONDON (Reuters) – European dividend futures are shaking from their months-long slumber, reflecting investor expectations that positive COVID-19 vaccine updates in addition to billions of dollars in stimulus will accelerate the expected recovery in corporate profits.

On Wednesday, 2021 dividend futures for European banks jumped 11% after European Central Bank official Yves Mersch said lenders could be allowed to resume payments next year if they showed that their balance sheet was strong enough. The contract remains well below 2019 levels.

Chart: Bank dividend futures –

More generally, STOXX euro dividend futures for 2023 and beyond jumped about 20% in November, given expectations that vaccinations could start next month. Derivatives, measuring future dividend payments, have recovered alongside so-called value stocks, companies more sensitive to economic cycles.

“It is hoped that financial services will be a key source of dividend growth next year,” Morgan Stanley analysts told clients.

This is not at all certain – the EU watchdog has said it is too early to lift dividend bans. European regulators recommended the suspension of dividends earlier this year in an attempt to preserve bank capital in the face of increasing loan losses and demand for credit.

Futures contracts suggest that even in 2026-2028, dividends on the euroSTOXX 50 will remain 20% below pre-pandemic levels.

Graphic: future Divi wake up after the vaccine update –

Less gloomy data from IHS Markit still shows Euro STOXX and FTSE dividends to be 15% and 25% below pre-pandemic levels in 2022, respectively. US payments, however, are expected to rebound to pre-pandemic levels. pandemic by the end of 2020.

Many analysts point out that dividends took four years to fully recover from the 2008-09 financial crisis.

“I think some value rotations are a bit of a stretch,” JPMorgan analyst Nikolaos Panigirtzoglou said, referring to the rush for banking, travel and industrial stocks.

“I wouldn’t bet some of these companies will be able to increase their dividends from here. It will take about three years for dividends to normalize. “

Globally, dividends could fall by $ 263 billion this year, according to a report by Janus Henderson this week, while analysts tracked by Refinitiv I / B / E / S predict that constituent payments of the STOXX 600 index could drop nearly $ 60 billion.

Chart: Divi forward 12 months Europe and US –

Despite the optimism, the dividend recovery will lag earnings, Morgan Stanley said, adding that if “European profitability will exceed 2019 levels by 2022, we believe dividends are less likely to achieve this feat. “.

Reporting by Thyagaraju Adinarayan and Sujata Rao; edited by Emelia Sithole-Matarise

Original © Thomson Reuters

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