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Sectors In Which Stock Market Declines Enhance Dividends The Most

That nine of the 20 sectors included in the Stox 600 have reached this week’s highest dividend yield of 12 months ago is no coincidence. The falls in equities that are the protagonists of the current year, with the aforementioned European index with annual losses of more than 19%, leave the different industries that make it up with some of the most attractive returns in recent years. Thus, although the rebound that the European markets have experienced in the last two days has somewhat relaxed these remunerations, on Thursday almost half of the segments of the Stoxx 600 reached the highest profitability peak of a year.

Specifically, the real estate sector; utilities; telecommunications; construction and materials; finance; personal property; consumer products and services and food, beverages and tobacco are the ones that this week offered the highest shareholder payments in the last 12 months. And of these nine, all sectors except the last three, have average returns for 2022 of more than 3.5%, with real estate as the leader in this matter, with 5.7%, according to data from Bloomberg.

And it is that, the other side of the coin that reveals the complicated macroeconomic situation that has kept the market in suspense since the first of January is that of the payment to the shareholder. So much so that nine of the 20 sectors that make up the Old Continent index offer, at current prices, returns greater than 4.5% for this year.

Leaving aside the segments that are at one-year highs, the basic resources industry – supported by raw materials and companies such as steel, coal or steel companies, among others – presents the most attractive dividend yield of Europe for this 2022, offering a 7.8% yield. However, its high data is not specifically due to the crashes, since the sector, although it is also going through the negative environment with losses of around 5%, is the one that is left the least in the calculation of the year, despite the fact that it has not been able to escape the clutches of inflation and the fear of recession.

“We believe that earnings estimates for European companies are currently somewhat inflated and will need to be revised downwards in the coming months, which will obviously also lead to downward revisions in dividends for many companies” , explains Juan José Fernández-Figares, director of the Link Securities analysis department, in this regard. For the other side of the pond, the expert pointed out that, on Wall Street, “this process has moved forward and analysts have been revising their expectations of results downward for months.”

Regarding the current attractiveness of the European stock market, the Link Securities analyst offers a more pessimistic view: “I don’t think that the higher dividend yield offered by the European stock market makes it currently more attractive. Firstly, because we believe that it will revised downwards and, secondly, because the macro scenario of the region is more complicated than that of other regions, mainly due to the structural energy crisis that Europe is facing,” Fernández-Figares points out.

Taking a more optimistic view, Caroline Randall, portfolio manager at Capital Group, explains that going forward, “I expect dividends to play a larger role in total shareholder return than in recent years, when Growth stocks have been in. But if you’re going to rely more on dividends, you have to make sure companies are able to maintain and grow their distribution, and this is where Capital Group’s fundamental analysis comes to the fore.” .

Thus, the expert adds that, rather than high yields, Capital Group focuses on the growth of dividends, since “the former is one of the clearest signs of a company’s confidence in the growth of its future earnings. Dividend-paying securities are attractive investment opportunities at a time of increasing market volatility and can help bolster investment returns at a time of rising inflation.”

At 2020 levels
The declines suffered this week left the European real estate and technology sectors at profitability levels not seen since March 2020, that is, in the midst of the coronavirus crisis. So much so that the Merlin Properties socimi is the one that offers the highest shareholder payment in its sector and one of the highest in the European stock market –with, in addition, purchase advice–, with 14.7% at current prices .

And it is that, despite the increase in construction costs in the year (of around 10%) due to the escalation of raw materials –which leads the sector to be the most bearish of the Stoxx 600–, it is the companies of this segment, such as Neinor Homes or Metrovacesa, which offer some of the highest dividends, with returns between 15% and 18%, since, despite the situation, these firms do not foresee a drop in sales and, therefore, , in its benefits.

Among the companies that offer dividends above 6% and that, in addition, hang the buy sign, after Merlin Properties is the French Engie as the second most attractive, with a dividend of 10.2% at current prices. The next most greedy within these parameters are the utility Enel and the Swedish telecommunications company Tele2, with respective returns of 10%. In the construction segment, however, only ACS offers remuneration of more than 6% (8.6%, exactly) and has the best possible advice.

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