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European companies to pay record dividends of €315 billion

Allianz Global Investors (AllianzGI) expects European companies to pay out a record c.315 billion euros in shareholder dividends in 2016.

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Last year, companies paid out approximately 304 billion euros in dividends to shareholders, the highest figure ever recorded. Despite a turbulent start to 2016 for markets, companies across the MSCI Europe index are likely to pay out total dividends over 3 percent higher than those in 2015 according to analysis by AllianzGI. On the basis of the asset manager’s estimations, the average dividend yield in 2016 is likely to be around 3.5 percent. *

According to AllianzGI’s CIO Equity Europe Joerg de Vries-Hippen, who manages the Allianz European Equity Dividend fund, the eurozone is continuing along the path to recovery, despite increasing uncertainties:

Low commodity prices, persistently loose monetary policy and a weak euro are supportive factors. In this environment, many European companies were able to post significant revenue."

Mr de Vries-Hippen’s fund currently invests in 46 companies with continuous above-average dividend yields and has proven comparatively stable, especially during time of market uncertainty. With an active share of 85 percent, the average dividend yield across the fund has been c.5 percent over the last three years, while overall fund performance has averaged 12 percent per year . However, while many European companies currently have healthy cash reserves, it is important for de Vries-Hippen to select those companies that will continue on this trend over the coming years:

"Our aim is for clients to have a comparable equity performance, but at a lower risk. This means limiting volatility by focusing on those companies that pay out higher dividend yields than average", the portfolio manager explains. The positive outlook on the dividend season is a promising indicator for de Vries-Hippen, but not the only one:

We would not invest in a company based on short term dividend expectations. The dividend history is at least as important for us. Sustainable dividend yields between four and six percent are proof of the efficiency of a company across different market cycles. Companies that can fulfill this payment behavior, even in difficult conditions, can prove they have built resilient business models, allowing them to develop long-term, trusting relationships with investors."

The advantages of dividends in client portfolios are summarized in a publication by Allianz Global Investors called Dividends instead of low interest rates. The publication emphasizes the stabilizing effect of dividends on a portfolio’s overall performance, as well as the yield advantages in the ongoing low interest rate environment. Hans-Jörg Naumer, Head of Capital Market Analysis writes that, "While especially long-dated government bonds of European countries have a return above zero in the best scenario, the average yields of German stocks currently amounts to 3 percent."

Next Finance , February 2016

Article also available in : English EN | français FR

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