Europe: little choice other than equities

Added 27th July 2015

With bonds trading at low yields, investors seeking income now have little alternative but to turn to European equities, according to James Sym, fund manager for European equities at Schroders.

Europe: little choice other than equities

The firm favours cyclical opportunities and prefers stocks that can benefit from improving economic growth in Europe.

“Much of the European equities space is currently experiencing depressed profits, implying high potential for recovery and the possibility of raising dividends as profit growth comes through,” Sym said.

A look at the current yield from various asset classes, as sourced from a recent Schroders report:

Stan Pearson, head of European Equity at Standard Life Investments echoed similar views recently. Currently some 70% of listed European equities have a dividend yield higher than European credit, said Pearson. 

Family touch

The dividend culture in continental Europe, which is normally viewed as a hunting ground for income seekers, is different than other markets, he said.

Founding families still hold significant stakes in many European companies and rely on dividends for their own income, said Sym.

“Companies where there is an influential shareholder reliant on the dividend stream are more likely to continue to pay out those dividends, even if the firm’s financial metrics are somewhat stretched.

“Companies without such a shareholder might be more inclined to shore up their finances rather than pay out or raise a dividend.”

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