Allianz Global Investors, one of the world’s leading active investment managers predicts European equity investors can look forward to an increase in dividends as European dividend payouts are expected to reach record highs in 2022.
After a Coronavirus crisis-related slump in dividend payments in 2020, companies in the European equity index MSCI Europe raised their payouts again last year by around a third, to a record €378 billion.1 According to AllianzGI estimates, companies are likely to add to this again and a further increase in total dividends of about 8 percent to approximately 410 billion euros is expected in 2022.
“In contrast to the overall economic picture, dividend payments in 2021 showed a pronounced V-shaped development,” explains Jörg de Vries-Hippen, CIO Equity Europe at Allianz Global Investors. “Payments in 2021 were approximately €378bn, continuing the trend we saw before the pandemic. In 2022, we predict this upward trend will continue, with payouts reaching a new record level of around €410bn.”
In many European countries, there were still slightly fewer companies that paid out dividends compared to before the pandemic. However, companies that paid dividends were able and willing to offer their shareholders more again after the challenges of the previous year. “This once again reflects that the dividend policy of many companies is aimed at steady, and sometimes even steadily increasing payouts,” says de Vries-Hippen.
In 2022, AllianzGI expects low double-digit growth rates in dividend payouts in the larger European countries including Germany, France, and Italy (increases of 10 to 13 percent each). Spain may see increases of 15 to 20 percent as it has navigated the pandemic relatively well in recent months. In Great Britain, on the other hand, the dividend increase is likely to be more modest, averaging around 4 percent. According to de Vries-Hippen, the continuing Brexit-related burdens on the British economy also play a role here.
“As the world recovers from the effects of the pandemic, dividends continue to make a substantial contribution to the return on equities, especially in Europe,” says Dr Hans-Jörg Naumer, Head of Global Capital Markets & Thematic Research and author of the AllianzGI Dividend Study 2022. As a result of the Coronavirus pandemic, the dividend yield in Europe has fallen in the last two years. However, at around 2.5 percent in 2021, it was still significantly higher than the nominal yields of many bond market securities. For example, 10-year Bunds showed a negative yield throughout last year.
The importance of dividends becomes even clearer when looking at the long-term view. Naumer points out: “Dividends lend stability to many portfolios, especially in years with negative price developments, as they can compensate for price losses in whole or in part. According to our calculations, the average equity volatility of dividend payers is significantly and systematically lower than that of non-payers – we are talking about a difference of more than 10 percentage points for the broad European equity market.”2 In Europe, the dividend culture is particularly strong compared to the US and Asia. In the period 1976 to the end of 2021, about 34 percent of total equity returns here were attributable to dividends.
“Dividends therefore remain of central importance for investors, and in a time of disruption and change, they show a degree of reliability that is very welcome”, adds Naumer.