The financial sector is going to re-measure itself on the dividend battlefield starting this year. The bank, which had had its troops protected from what might happen, could foreseeably redeploy its armies in all the domains covered by the Central Bank chaired by Christine Lagarde as of October and that is when it will again see the faces with the insurers, to whom the EIOPA (the sector supervisor) had also cut their wings to see how the pandemic evolved.
But the vaccination march, despite the Delta variant that worries and occupies the continental governments, will make the payments that are charged to the accounts of 2021 a much more attractive remuneration for investors. And there is more.
The dividend will also be a catalyst for the rise of the financial sector on the stock market, which will consolidate the rally of recent months and which places the banking sector as the most bullish sector in the year, with gains of 22% in Europe. Check here the schedule of upcoming dividends for the stock market
The best proof that banks have been able to weather the crisis is that 9.1% turnover is expected in 2022
At the moment, the market consensus does not reflect news on the front. This is what has already been happening in recent years. The insurance sector has and will have a more profitable dividend than the banking sector for the next two years.It is estimated that the average profitability of insurance payments will reach 5.7% among European giants in 2021, which is 1.7 percentage points than the 4% expected for the average of large banks.
Looking ahead to 2022, insurance will be able to keep the average profitability stable, and it will already be seen how banks begin to gain ground in the battle as their expected return will exceed 5.1%. And be careful because the Spanish division of the insurance battalion has a captain among its ranks.
It is Mapfre that hangs the silver for the profitability of its dividend already in 2021, almost touching 8%, only surpassed by the British Direct Line, which is a copy of the newcomer Línea Directa to the Spanish market (car insurance, focused on online and with much higher returns and combined ratios of 87%) that reaches 8.3% this year and will dispute the leadership in 2022.
The end of the prohibitions
Banks have returned to the Risk board earlier than expected. The ECB decided last week to anticipate the forecasts (which predicted an advance of its decision on July 23) and has already announced that it will opt to lift the ban on the distribution of dividends that expires in September. “The ECB has released a detailed assessment of the impact of its dividend ban.
The surprise is not the conclusion: that the ban caused share prices to fall and raised the cost of capital., without any benefit to credit spreads. The surprise is that the ECB has published it. Looking ahead to the July 23 decision on whether to remove distribution restrictions on September 30, we believe this is important and welcome, “say Bank of America analysts, who believe the agency has missed the mark.”
The prohibition of dividends was explained by the ECB due to the risk of a possible increase of 900,000 million euros in non-performing loans. “On the other hand, not only have they not risen” but they have fallen drastically “, which is explained by the aid of the governments to the economy, they conclude.
The return to payments will also be a catalyst for bank and insurance actions in 2021
The best proof that banks have been able to weather the current crisis are the returns on capital that they are already presenting . Looking to the end of the year, the consensus foresees average RoTE (return on tangible capital) levels for the dozen of the largest Stoxx 600 entities of 8.6%, reaching 9.1% in 2022 and 9.6 % in 2023.
The Stoxx 600 Insurance is up 5.7% so far this year, in the lower-middle part of the European continent.
The insurance dividend
A new subsector among insurers has emerged as one of the highest profitability in Europe and is linked, mainly to car insurance over the Internet. This is where Línea Directa is located, which has announced a first dividend of 0.024 euros per share and an annual profitability of 5.45% , according to the company estimates.
Close sources insist that their idea is to adjust to payments that are more than 80% -90% of payout than the minimum to which Línea Directa has committed to 70%, although it is still too early to know.
Its direct counterpart , Direct Line , British and with a profile very similar to its national counterpart, leads the ranking of dividend yield in Europe with returns above 8% in the next two years. Mapfre will be at that level already in 2022, although the firm insisted a few months ago that these returns are distorted by the share priceand that, when the price recovers, the Spanish firm will return to levels close to 5% -6%.
In any case, the consensus does predict that Mapfre will return to pre-crisis payments already charged to 2021. In 2020 it lowered its payment to 0.1262 gross euros per share, which implies a drop of 14% from 0, 1464 that he paid out of 2019. Looking ahead to 2021 this will recover 14 cents per title, according to analysts, and will rise to 0.15 euros in 2022. Its titles are far from recovering pre-pandemic levels, still 27% below.
Santander will exceed the dividend prior to the Covid in 2022, with 0.16 euros expected and a return of 5.7%
Mapfre is ahead of the large continental insurers which, in any case, do aspire to returns above 7%. This is the case of Swiss Re and Axa . The French insurer halved the dividend charged to 2019 – down to 0.73 euros – in response to the EIOPA recommendations. It is expected that in 2021 it will distribute 1.5, which is 5% more than the 1.43 forecast for the Covid year. Pay, yes, in scrip format . On the other hand, around 6% are the Italian Generali and Zurich Insurance .
The two Germans, Allianz and Munich Re, have payments of 4.9% and 4.5% this year, although with a better performance on the stock market than the Spanish. In this sense, analysts also expect an improvement in the payment of Grupo Catalana Occidente. An increase of 6.8% is expected this year to a dividend of 0.94 euros and that it will reach 0.99 in 2022.
This would imply resuming the growth path in their remuneration that was truncated in 2019 due to the limitations imposed by Brussels, and which has been maintained uninterrupted since 2006.
The banks are back
In the absence of new news – which is not expected for another two years – about an increase in interest rates, the return of payments will mean a new boost in the sector on the stock market. With no provisions, except for some exceptions, European banks will be able to carry out what was their initial plan and that is to recover the dividend as soon as possible.
On average, the profitability of its payments will reach 4% this year among the large European players and will exceed 5% next year. It is the strip in which the large Spanish banks, Santander and BBVA , move, leaving the leadership for entities such as Intesa San Paolo .
The Italian has a very clear roadmap that is to progressively lower the payout , from 85% in 2018 to the 70% expected in 2021. And it wants to maintain its strategic plan despite the ECB. He plans to call an extraordinary meeting on September 30 to approve the distribution of the reserves he made under 2020 before the veto of Brussels and plans to distribute that money as an extraordinary.
The consensus foresees that its payment will increase from 0.14 to 0.16 euros between 2021 and 2022, which implies returns of 6% and 7%. It also foresees that its profit will touch the 4.118 million of 2019 already in December.
ING can distribute the reserves it set aside last year before the ECB veto from September
DNB Bank , Norway’s largest bank, will resume its committed policy of increasing dividends and share buyback program in 2021. Throughout the crisis, and in the face of Brussels bans, the Nordic countries have claimed to be able to distribute dividends in the face of their high dividends. capital levels, higher than Central Europe, and with RoTEs of more than 10% comparable to the Swiss, such as UBS.
A dividend of 1.06 euros per share is expected, which achieves the second highest profitability among the large companies, 6.1% in 2021.
The third position for profitability (with 6%) is for ING . The Dutch firm is another classic of retribution. It maintains a commitment of 50% payout and the consensus expects it to pay 0.6 euros charged to 2021. It has paid, to date, the two dividends charged to 2020 and the end of 2019 on the recommendation of the ECB. The last full year was 2018, when it distributed 0.76 euros, so the 60 cents would still be 21% below.
And what about the Spanish? Although 2021 still seems like a transition year, for the 2022 payment, returns of more than 5% are expected for BBVA and CaixaBank and 5.7% for Santander. What is expected is that it will not be until 2023 when they recover the pre-Covid dividend.
The entity chaired by Ana Botín has committed to a payout of 40% -50% charged to 2021. A payment of 0.12 euros is expected, charged to the estimated profit of almost 6,000 million euros and that it rises to 0, 16 in 2022. The pre-Covid forecast for 2019 was 0.15, which would already overcome the pothole.
BBVA raises a payoutmaximum 40% and CaixaBank 30%, once Bankia has been merged. All in cash. It remains to be seen how the blue entity will carry out its 10% share buyback program. It is expected to start in November for 3,500 million euros.