Dividends to Fall Fastest Since 1999 in Europe, Futures Show

By Gareth Gore and Adam Haigh

June 4 (Bloomberg) -- European companies will reduce dividends over the next 18 months at the fastest rate since at least 1999, even as analysts increase earnings forecasts, trading in futures shows.

Dow Jones Euro Stoxx 50 Index Dividend Futures that allow investors to speculate on payouts show companies will lower their dividends by 28 percent this year compared with 2008. In 2010, cuts will amount to 32 percent, according to data compiled by the Eurex exchange and Bloomberg.

Companies from London-based Anglo American Plc to PSA Peugeot Citroen in Paris reduced payouts to investors this year, conserving cash during the first global recession since World War II. Now, futures prices suggest damage from the slump is so widespread that dividend cuts will deepen even as analysts estimate earnings will rise 10 percent this year and 22 percent in 2010.

“There are still a lot of overstretched companies out there who see cutting the dividend as an easy way to reduce leverage,” said Bob Parker, who helps oversees $600 billion as vice chairman of Credit Suisse Asset Management in London. “Dividends are being cut notably, and we’re going to see more of that as companies do all they can to improve cash flow.”

The 2009 contract for Euro Stoxx 50 Index Dividend Futures closed yesterday at 113 points, 28 percent lower than last year’s 157.7. A declining price means traders anticipate lower dividends.

The Euro Stoxx 50 is up 1.5 percent for the year after rallying 37 percent from a 12-year low on March 9. The index is still down 46 percent from a six-year high in July 2007.

Anglo American, Peugeot

The 2010 dividend contract traded at 77.4, implying a 32 percent slide in payouts next year. Dividends almost doubled from 83.3 to 157.7 from 2004 to 2008, the data show.

Anglo American, the company that controls the world’s largest platinum producer, suspended its dividends in February for the first time since World War II. Peugeot’s proposal for no dividend to be paid on 2008 earnings was approved June 3 by shareholders at the annual shareholder meeting for Europe’s second-largest carmaker in Paris.

In the U.S., stock dividends are shrinking at the fastest rate since at least 1955, according to data compiled by Howard Silverblatt, a New York-based analyst at Standard & Poor’s.

New York Times, GE

New York Times Co. said in February it would stop paying a dividend for the first time in its 40-year history as a public company. Fairfield, Connecticut-based General Electric Co. in the same month cut its dividend for the first time since 1938 to preserve cash.

Profits at companies in the S&P 500 have slipped for seven consecutive quarters. Earnings for companies in Europe’s Dow Jones Stoxx 600 Index slid 47 percent last quarter, data compiled by Bloomberg show.

Kevin Shacknofsky says that so-called income shares that depend on dividend payments of industrial companies instead of growth may suffer. “Two thousand nine will likely be a weak year and that’s going to be reflected in the dividends for 2010,” Shacknofsky said. The $1.5 billion Alpine Total Dynamic Dividend Fund has added 42 percent in 2009, compared with an average 14 advance for its rivals, Bloomberg data show.

Lower dividends may increase investor concern that stocks have gotten too expensive amid signs the worst of the global recession may be over. Europe’s Dow Jones Stoxx 600 Index on June 2 was valued at 25.5 times the earnings of its companies, the highest level since 2004, data compiled by Bloomberg show.

Higher Forecasts

Analysts have boosted their forecasts for European earnings since the start of the year, with Stoxx 600 companies now projected to post a 10 percent increase in profit for 2009, compared with estimates at the end of December for a 0.7 percent drop, data compiled by Bloomberg show. For 2010, forecasts have increased to 22 percent earnings growth from 15 percent at the end of March, when the estimates were first compiled.

“If we went into a long-term low growth scenario I don’t think we could take dividends for granted,” said Nick McLeod- Clarke, who runs the London-based U.K. Income Fund for BlackRock Inc., which oversees $1.28 trillion. “We are seeing some encouraging signs in some leading indicators. The question that we don’t know is whether the growth can be sustained.”

To contact the reporters on this story: Gareth Gore in Madrid ggore1@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.