RUSSIA: DIVIDENDS DROP
Political pressure to keep currency inside the country is beginning to affect the way Russian companies set their dividends, according to research from Henderson Global Investors.
Its analysis shows that in the first three months of this year, dividends from companies in Russia more than halved compared with the first quarter of 2013.
"In setting dividend policy, directors of Russian companies will be conscious that sanctions are getting tighter and potentially for oil and gas companies, they will have to consider how wise it is to see increasing amounts of cash leaving the company to go to shareholders, including overseas institutions," said Alex Crooke, head of global equity income at Henderson.
"We believe that political pressure to preserve currency reserves is becoming a factor in terms of board decisions on dividend payments, and that if sanctions bite further, then dividends could be cut next year," he said.
Some Russian companies must have slashed payments, as the overall drop in dividend payments is at odds with increased payouts from some partially state-owned groups such as Rosneft.
Last year Russia introduced new rules that required state companies to share more of their profits with investors.
Though the steep drop in Russia's dividends partly reflects a wider pattern of falling payouts from companies in emerging markets, it is in marked contrast to the Q1 growth seen at companies in developed European economies and, most notably, the US.
Henderson's research suggests that companies in emerging markets have a more variable track record when it comes to dividend payments than groups in developed markets, primarily because of the impact of their more volatile exchange rates against the US dollar.
The strong growth in US dividend payments – at the underlying level they were 16 per cent higher than in the first three months of last year – is partly due to investor pressure for income.
Mr Crooke also identified a "time lag" factor. "When earnings first pick up, the payout ratio tends to drop as directors wait to increase dividends until they are sure that the higher level of profitability is sustainable. Typically, that takes a year or two," he said.
Because US companies tend to pay dividends quarterly, while other regions have different patterns of payments – European companies, for example, tend to favour the second quarter – the increase in US payouts made a particularly significant contribution to the global total in the first quarter.
Total global dividends rose by almost one-third in Q1 to reach $228.4bn. Almost half the $54.6bn rise came from the special dividend from Vodafone on the sale of its stake in Verizon.
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