UK and Europe set for record dividend pay-outs in 2017 despite big political risk

Jasper Jolly
Follow Jasper
Marks & Spencer Christmas Sales Expected To Be Disappointing
Marks & Spencer offers one of the top 20 dividends by yield on the FTSE 100 (Source: Getty)

The biggest companies in the UK and Europe are set to pay out a record €315bn (£272bn) in dividends over the course of this year despite political headwinds from Brexit and multiple elections in important EU countries.

Dividend pay-outs will rise by four per cent compared with the €302bn paid last year by companies in the MSCI Europe index, which includes the UK, according to Allianz Global Investors.

The historically low-yield environment for government bonds means investors have to look elsewhere for income generation. Dividend yields were around 3.5 per cent at the end of 2016, according to Allianz, whereas the German 10-year government Bund currently yields only 0.35 per cent.

Read more: Here's why investing in some FTSE 100 companies might not be the best bet

With the higher returns on shares in companies with regular dividends come significantly higher risk, but Europe’s big businesses should be insulated from what could be a politically turbulent year, according to Allianz.

Multinational operations could protect dividends from companies in the FTSE 100 from tracking the turbulence of Brexit negotiations throughout 2017, according to Allianz GI. Around 70 per cent of FTSE 100 profits are earned in currencies other than sterling.

Jorg de Vries-Hippen, chief investment officer for equities in Europe at Allianz GI, said: "Quality companies have the advantage of being internationally well diversified. This means that their business already shows relatively little correlation with the UK political landscape."

Read more: 13 years of returns: history’s lesson for investors

Elections are set to be carried out in France, the Netherlands, and Germany during the course of 2017. Anti-globalisation candidates are expected to offer significant challenges to more centrist, pro-trade incumbents in each.

Chances are thought to be slim of any of the outsider candidates unseating more orthodox politicians, although investors are keeping a wary eye on Marine Le Pen in France, the leader of the hard-right Front National.

De Vries-Hippen said: "2017 will certainly not be an easy one for the Grande Nation. An unstable government in Paris not only results in the political engine of the European Union stuttering, but domestic companies also suffer from the situation. But some traditional French companies will be able to decouple from the political environment because of their international positioning."

Related articles