Putin Dividend Intervention Lifts Yield to Three-Year High
Russian companies are paying the biggest dividends relative to emerging markets since 2009 as President Vladimir Putin extracts higher payouts before $12 billion of state asset sales.
Micex Index companies from OAO Rosneft (ROSN), Russia’s biggest oil producer, to OAO Sberbank (SBER), the largest lender, paid record dividends in the past year and will boost distributions by 16 percent in the next 12 months, the most among the four biggest developing economies, analysts’ projections compiled by Bloomberg show. The gauge’s 3.8 percent estimated yield compares with 3.1 percent for the MSCI Emerging Markets Index. (MXEF) The gap hit a three-year high of 1.1 percentage points in June.
While Prosperity Capital, the largest foreign investor in Russia’s financial markets, expects bigger payouts will push stocks higher, Putin’s intervention also reminds shareholders of his willingness to interfere with public companies. Unlike the government-imposed liquidation of OAO Yukos Oil Co. six years ago, this push shows a more market-friendly Putin, according to Matthias Siller, who helps oversee about $4 billion as a money manager at Baring Asset Management in London.
“The indications I get from higher dividend payout ratios is that the Russian government is more serious about delivering on its promises of market reforms and better corporate governance,” Siller said in a phone interview.
The 25 stocks in the Micex (INDEXCF) paying cash dividends this year returned an average 14 percent in Moscow trading, versus a 12 percent drop for the five non-payers, data compiled by Bloomberg show. In the Standard & Poor’s 500 Index (SPX), companies with dividends lagged behind by about 2 percentage points on average.
The Micex payout will climb to 56 rubles a share in the next 12 months, according to more than 200 analyst estimates compiled by Bloomberg. The 16 percent projected growth rate compares with 15 percent in India (SENSEX), 5 percent in China and a 16 percent decline in Brazil, forecasts compiled by Bloomberg show.
The Russian index fell 1 percent to 1,515.30 today in Moscow, paring this year’s gain to 8 percent. That compares with a 10 percent advance for the MSCI emerging-market gauge. The Micex is valued at 5.8 times reported earnings, the lowest level among benchmark equity gauges in 45 developing and advanced countries tracked by Bloomberg. The MSCI emerging markets index trades for 13 times profit.
Putin, 59, is seeking to increase market values before the government sells stakes of state-controlled companies, according to Dmitri Kryukov, a founding partner at Verno Capital, a Moscow-based hedge fund.
Russia plans to raise 380 billion rubles ($12 billion) from state asset sales next year, the Finance Ministry said in a budget plan published on its website July 18. That would be the biggest amount for any year on record, according to Chris Weafer, chief strategist at Troika Dialog, the investment bank owned by government-controlled lender Sberbank.
Sberbank, which more than doubled its dividend for 2011, climbed 21 percent in Moscow trading this year through yesterday. Russia’s central bank began selling a 7.6 percent stake in the Moscow-based lender yesterday. Bids will be accepted through today, according to a statement from the nation’s bourse.
In the 1990s, Boris Yeltsin’s government pledged some of the nation’s biggest companies as collateral for loans from the richest business people to plug a budget shortfall. The loans- for-shares program eventually put the companies in the hands of the lenders, known collectively as “oligarchs,” because the government never repaid the debt. Six years ago, state-run Rosneft raised more than $10 billion through an initial public offering.
Russian bond yields have fallen relative to stocks, with government ruble debt yielding about 3.5 percentage points more than the Micex Index. The average gap was 4.5 percentage points during the past five years, according to JPMorgan Chase & Co.’s GBI-EM index.
Rosneft said in a statement today the company will more than double its dividend for 2011 following a request from Putin. The Micex rallied on July 10 after the Russian president said at a meeting in Moscow with executives and government officials that energy companies, which account for about 54 percent of Russia’s stock market value, should consider boosting dividends.
Moscow-based Rosneft, majority owned by the government, plans to pay out at least 25 percent of net income under International Financial Reporting Standards to shareholders for 2012, the company’s press service said in an e-mailed response to questions from Bloomberg News on Sept. 5.
Russian state-owned companies should “in most cases” pay 25 percent of profit as dividends, Deputy Prime Minister Arkady Dvorkovich said at a conference in London on Sept. 11. Dmitry Peskov, a spokesman for Putin, declined to comment.
Companies not controlled by the state also are increasing dividends. Payouts at OAO Magnit, the Krasnodar-based food retailer, may jump 24 percent next year and 23 percent in 2014, according to the average of analysts’ estimates compiled by Bloomberg.
OAO Novatek (NVTK), controlled by billionaires Leonid Mikhelson and Gennady Timchenko, will increase its payout to 11 rubles a share in 2014 from 6.8 rubles this year as earnings surge 59 percent, analysts’ projections compiled by Bloomberg show.
“Companies are starting to realize that paying dividends and making investors happy leads to increased return on investments and better share performance,” said Vladimir Bragin, who helps oversee about $2.6 billion as the head of research at Alfa Capital in Moscow.
Some Russian companies have boosted dividends in part because they’re running out of new projects to lift profit growth, said Mikhail Akramovsky, who manages $850 million in Russian assets at Allianz Rosno Asset Management in Moscow.
OAO Gazprom (GAZP), Russia’s state-controlled natural gas exporter, boosted its payout to 8.97 rubles a share this year from 3.85 rubles in 2011, even as analysts’ estimates show the Moscow-based company probably will post a 10 percent drop in earnings this year, according to data compiled by Bloomberg. Gazprom’s stock has retreated 1.1 percent in 2012.
Bigger dividends make sense when companies “have reached a level where significant additional growth is almost impossible,” said Akramovsky.
Gazprom plans to sustain “high” dividends, and its payouts have supported the shares, the company’s press service said in an e-mail on Aug. 31. The gas producer’s dividend policy complies with government requirements, Andrei Akimov, a board member, said in an April 27 conference call with analysts.
Dmitry Postolenko, who manages $110 million in Russian assets at Kapital Asset Management LLC in Moscow, said he’s avoiding many companies with government links because political interests may curb returns.
Yukos, once Russia’s largest oil producer, was bankrupted during Putin’s presidency in 2006 after the government claimed about $30 billion in back taxes. Mikhail Khodorkovsky, the former chief executive officer, was jailed for fraud and oil embezzlement, charges he says were linked to his financing of opposition political parties.
“We’re trying to avoid many state-owned companies,” Postolenko said in a phone interview. “We try to invest in companies with a transparent investor body where investors are genuinely driven by business and not political interests.”
Putin isn’t the only emerging-market leader pressing publicly-traded companies to boost dividends. Polish Prime Minister Donald Tusk’s administration forced KGHM Polska Miedz SA, the nation’s state-owned copper producer, to pay dividends 67 percent higher than managers proposed in June. China’s government said in a May 4 statement it will increase payouts by state-owned companies. Poland’s WIG20 Index (WIG20) has advanced 12 percent this year, while the Shanghai Composite Index fell 5.5 percent.
Equity yields are rising in Russia as dividends increase faster than stock prices. The combined payout for Micex companies jumped 42 percent during the past 12 months to 48 rubles per share, compared with a 1.3 percent gain in the index’s price, data compiled by Bloomberg show.
That’s a turnaround from 2009, when yields rose because share prices sank more than dividends as the nation’s economy contracted. Russia’s gross domestic product may expand 4 percent this year and 3.9 percent in 2013, according to July estimates by the Washington-based International Monetary Fund.
“Eventually, dividends will help Russian stock valuations,” said Mattias Westman, who oversees about $4 billion in Russian assets as chief executive officer of Prosperity Capital in London, a company he says is the biggest foreign portfolio investor in Russia. “Once they get a higher dividend yield, these stocks will feel more real, people will probably become more interested in investing in them.”
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