Photographer: Simon Dawson/Bloomberg

Dividends Trump Buybacks for Europe’s Stock Investors

Between receiving a dividend and having their shares bought back, European investors show a preference for the payout. According to Nasdaq OMX Group Inc., it’s a question of commitment.

Shares of the 25 biggest dividend payers on the Stoxx Europe 600 Index outpaced those doing the biggest repurchases by almost 13 percent in the past year, according to a report by Nasdaq’s advisory-services unit.

“Dividends are a company’s confidence in its abilities to afford ongoing payments to its shareholders,” Nasdaq Advisory Services team wrote. Buybacks “can often be of more benefit to the company itself rather than its shareholders,” it said.

Take Swiss Life Holding AG. The insurer increased its dividend in February 2014 and ended up rallying 28 percent last year, almost three times more than companies in the Swiss Market Index. This year again, it said it will give a higher-than-estimated payout.

Deutsche Bank AG and Credit Suisse Group AG, which had some of the biggest buyback yields last year, lost more than 8 percent in 2014, data compiled by Bloomberg show. Increased regulatory scrutiny and fines helped push Stoxx 600 lenders lower last year. Vodafone Group Plc, whose buyback yield was also among the highest in the Stoxx 600, fell almost 25 percent in 2014.

Value Jump

European companies repurchased $116 billion of shares between 2012 and 2014 and raised their payouts by $125 billion, the Nasdaq Advisory Services report found. Stoxx 600 members boosting dividends added $3 trillion to their market value in that period, compared with a $328 billion gain for those repurchasing stock, according to the figures published in March and made available to Bloomberg this month.

The data didn’t separate the companies that did both and didn’t disclose how many bought back shares and how many increased their payouts.

Stoxx 600 members have hoarded cash, doubling it to 2.1 trillion euros ($2.3 trillion) since the 2008 meltdown, according to filings compiled by Bloomberg. They have increased dividends each year since 2010, with the payout climbing to 12.59 euros in 2014, the most since data going back to 2002.

The result: Investment firms with funds focusing on dividend-yielding stocks attracted the most new-customer money among active managers in the past few years, according to Nasdaq Advisory Services.

“Investors are realizing that beating the benchmark alone will not offer sufficient returns,” the report said. “If an active strategy is chosen, investors are preferring to have the hedge of dividend returns.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE