Thursday 24 May 2018

CEOs choose paying off shareholders over investing in their businesses

Stocks have more than doubled since 2009 after European Central Bank president Mario Draghi pledged to preserve the single currency
Stocks have more than doubled since 2009 after European Central Bank president Mario Draghi pledged to preserve the single currency

Namitha Jagadeesh

Given the choice between investing in their businesses or paying off shareholders, European chief executive officers are choosing the latter.

Companies of the benchmark Stoxx Europe 600 Index will pay €11.54 a share in dividends this year, the most since data going back to 2002, according to analysts' estimates compiled by Bloomberg.

At the same time, cash flow from operations is poised to be the highest since 2011, at €37.45 a share.

Stocks have more than doubled since 2009 after European Central Bank President Mario Draghi pledged to preserve the single currency.

European companies have pushed cash balances to €2 trillion, close to the most since at least 2003, following the 2008 financial crisis, according to data compiled by Bloomberg.

While the region emerged from its worst recession ever last year, CEOs remain sceptical about the euro area's economic recovery and want to see results of monetary policy, according to RMG Wealth Management's Stewart Richardson.

"There is money, but companies don't want to invest in big capex programmes," said Mr Richardson, who helps manage about $100m (€72m) as RMG's chief investment officer.

"They are uncertain where growth will come from, and there is a huge focus from corporate management to shore up balance sheets and share prices."

Since 2008, Stoxx 600 companies have doubled the amount of cash they hold, while capital expenses fell to €18.37 a share last year from €20.17 in 2008, the data shows.

About 57pc of global fund managers said companies should spend their money on business investments rather than on increasing dividends or share buybacks, according to a Bank of America survey last month.

While European stocks surged 17pc in 2013 on confidence that an improving economy will boost earnings, capital spending may take longer to bounce back, according to Ashburton's Veronika Pechlaner.

Bloomberg

Irish Independent

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