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Michael Baxter

Bull and bear: Dividends hit a new record, but 2013 forecast to see slower growth

Written by: Michael Baxter on October 23rd 2012

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimist view of investment news: Dividends hit a new record, but 2013 forecast to see slower growth. Now that BP and Vlad are best of friends, where does that leave the rest of the oil industry? EU fiscal deficit falls. Companies in the news: Aggreko, Senior, HICL.

Dividends hit a new record, but 2013 forecast to see slower growth

It was good news all around, except a doubt lingers.

According to Capital Registrars, the yield on FTSE 100 companies in Q3 was 4.5 per cent, and for the FTSE in general 4.4 per cent. Contrast that with other assets: over the same period, the yield on UK government 10 year benchmark bonds, for example, fell to 1.7 per cent. The comparison with property was more complex. Property provided a yield of 5.3 per cent, beating equities, but then there are costs associated with owning a rental property. Capita Registrars reckons these costs equate to roughly 1.5 per cent, meaning that equities were the highest yielding of all asset classes after taking this into account.

Total dividends in Q3 were worth £23.2 billion – the highest ever in a single quarter – and the growth rate achieved over the first nine months of 2012 was no less than 17.1 per cent compared to the same period last year.

As far as growth is concerned, the stars of the quarter were miners, oils and chemicals. The fastest growing sector was basic industries up 172 per cent year on year; industrials were up 39 per cent and basic metals 31 per cent. In contrast technology lost 15 per cent; telecommunications put on just 1 per cent and utilities 17 per cent. Timing issues were behind the fall in dividends from the technology sector.

It was a bad quarter for general retail, however. In particular the decision by Home Retail Group, owners of Argos and Homebase to cancel dividends due to tough trading conditions hit the sector hard.

Looking at the big dividend payers, the noticeable change between Q3 2012 and the same quarter last year may have been that BP and Glaxosmithkline switched places, with BP moving up from sixth to fourth spot, while the giant pharmaceutical moved down from fourth to sixth spot. Vodafone maintained its position as the largest dividend payer, followed by Royal Dutch Shell, and HSBC, while National Grid stayed in fifth  sport. The top ten was completed by British American Tobacco, (up from eighth to seventh spot) , Tesco (down one spot), BHP Billiton in ninth spot for the fourth time in the last six years and in tenth was Astrazeneca, occupying the same position as last year.

There are two snags. Snag one will be the subject of an imminent thought for the day.

Snag two relates to forecasts for 2013. Capita is forecasting £81 billion in dividends next year, just 3 per cent up on this. It says: “The apparent lack of progress is mainly due to the fact that we do not attempt to forecast special dividends and they are unlikely to be able to repeat the huge level of 2012.”

Will the dividends continue to flow in these times of economic uncertainty? Capita stated: “Even in the event of difficulty maintaining profits, firms will be keen to maintain dividend payments where they can, as not to do so sends a very negative signal to investors.”

Now that BP and Vlad are best of friends, where does that leave the rest of the oil industry?

Vladimir Putin has reportedly been a fan of BP for some time. You may recall that it was Vlad who wanted to work with BP in the Arctic, only for BP’s joint ventures partners in TNK-BP to put the kybosh on the plan.

Vlad was also reportedly outraged by the way in which BP had been treated in the US.

Now that BP finds itself with a big chunk of Rosneft, one assumes this will be the western oil company with which Vlad will choose to do business. And don’t forget that Rosneft’s CEO, Igor Sechin, is a former Russian Deputy Prime Minister and is apparently also very popular with Vlad.

So all that BP really needs to do is be nice, and not upset its new Russian friends.

For Royal Dutch Shell, Exxon Mobil, and Chevron, however, it is a different matter.

It has always been the way. When you seek to do business with a monarchy, when the ruling monarch really does have power and is not just a figure head, you need some kind of royal seal of approval. You needed that during the Middle Ages, you needed it under the Russian Tsars, and you need it under Tsar Vladimir.

According to this piece on Bloomberg (see Russia ‘Off Limits’ to Big Oil After BP Wins Putin’s Approval ), BP’s main rivals are seeing oil production slip. Much depends on which companies can do the business in Iraq. As for Russia, it would appear this is now BP’s turf.

Tsar Barack or King Romney might feel that the Brits need rewarding for the help they gave in Iraq, but surely that company will never be BP, which has been corporate enemy number one in the US for much of the last couple of years.

EU fiscal deficit falls

The total fiscal deficit across the EU fell from 6.5 per cent of GDP in 2010 to 4.4 per cent in 2011, so says data out yesterday. And for the euro area, the deficit fell from 6.2 to 4.1 per cent of GDP.

Yes that’s right, fiscal deficits fell.

Hungary, Estonia and Sweden all recorded fiscal surpluses, while Luxembourg, Finland and Germany also posted modest deficits.

Ireland had the highest deficit at 13.4 per cent, followed by Greece and Spain (9.4 per cent) and then good old safe haven UK, with a fiscal deficit of 7.8 per cent. Portugal’s deficit was 4.4 per cent, and Italy’s 3.9 per cent.

So much for borrowing last year! Which countries have the biggest debt overall? The lowest ratios of government debt to GDP were recorded in Estonia (6.1 per cent), Bulgaria (16.3 per cent), Luxembourg (18.3 per cent), Romania (33.4 per cent), Sweden (38.4 per cent) and Lithuania (38.5 per cent). Greece had the highest level of debt (170.6 per cent), followed by Italy (120.7 per cent), Portugal (108.1 per cent), Ireland (106.4 per cent), Belgium (97.8 per cent), France (86.0 per cent), the United Kingdom (85.0 per cent ), Hungary (81.4 per cent), Germany (80.5 per cent), Austria (72.4 per cent ), Cyprus (71.1 per cent), Malta (70.9 per cent), Spain (69.3 per cent), and the Netherlands (65.5 per cent).

Take a close look, and it is interesting to note that Spain’s total debt is still lower than Germany’s, and likely to remain so for the foreseeable future.

The UK’s situation is odd. George Osborne is one of the more enthusiastic advocates of austerity, and yet the UK remains one of Europe’s big borrowers.

Companies in the news

Tipsters at the ‘Telegraph’ and the ‘Times’ were in a bullish mood today.

At the ‘Times’, Tempus took a look at Aggreko, specialising in power and temperature control rentals, and Senior, the manufacturing group providing engineered products in Aerospace and Flexonics. Of course Aggreko has been hit by the troubles of the global economy, and indeed recently increased provision for bad debt, but Tempus reckons that in the longer term the demand for power generation will be strong, and – thanks to a recent fall in the shares – concluded this may be a buying opportunity, but progress might be slow.

As for Senior, Tempus sees this as a British success that can perform globally. It likes the share price too.

As for Questor at the ‘Telegraph’, it took a look at HICL, the infrastructure investment company. It has the company as a “buy” for its expected long run income stream.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Aggreko, Capita Registrars, fiscal deficit Greece Ireland Spain UK, FTSE yield, HICL, Senior, Vladimir Putin BP Royal Dutch Shell Exxon Mobil

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