Different European companies are all set to cut dividends to the lowest level in last 4 years as the Chief Executive Officers of these companies are piling up cash to weather the sovereign debt crisis of the region. According to initial estimates, the payouts to the shareholders of the benchmark gauge of the region, Euro Stoxx 50 Index will go down by 3.3% to 115.48 Euros a share in the current year. If this happens, the dividend will be cut short to 4.3% in 2013, way down from 6.3% of that of September, 2011. Incidentally, the cash on balance sheets jumped up to the highest value since 2008 for European companies and the Euro Stoxx 50 is currently on its 17-month high.
As stated by the European Investment Strategist of Bank of America’s Merrill Lynch Unit, John Bilton, on papers, there is excess cash on the balance sheets. However, the current dividend yield levels are still not sustainable.
In 2012, the holdings of cash and equivalents at the companies registered with Euro Stoxx 50 surged by 09.3% to 1834.44 Euros each share. Incidentally, the estimated dividend yield on the gauge saw decline in 2012. According to initial projections, the same for Standard and Poor’s 500 Index jumped up by 2.3%.
The Euro region economy is expected to shrink by 0.1% in 2013. In 2012, the economy saw a decline of 0.4%. Added to that is the worry that China’s economic growth with stumble in 2013 and hence, the revenue for the European companies are also expected to decline by 1% in 2013.
Abi Oladimeji, who heads the Investment Strategy Department of Thomas Miller Investment Ltd., said that slow economic growth is having an adverse impact on overall consumer demand and hence, the corporate profitability is suffering as well. Abi added that as the political and economic outlook of the Euro region is highly uncertain at current times, the companies will have a hard time to take the future investment decisions.
When it comes to the stock exchange, the Euro Stoxx 50 jumped up by 14% in 2012, posting its first gain in 4 years. The stocks were mainly helped by the decision of European Central Bank to go for an unlimited bond buying plan so that the borrowing costs of the weakest economies of the region can be brought down.