Russian Dividend Yields Outpace EM Peers on Weaker RubleHalia Pavliva and Ksenia Galouchko
Russian companies are paying out almost twice as much in dividends as emerging-market peers relative to their stock prices as a rout in the ruble helped boost exporters’ cash piles.
The average 12-month gross dividend yield of stocks on the MSCI Russia Index is 4.6 percent, compared with 2.5 percent for equities in the developing-nation benchmark. The spread between the two is near the highest since at least 1995, data compiled by Bloomberg show.
Companies that sell abroad and have costs in rubles have benefited from the local currency’s 31 percent depreciation against the dollar in the past 12 months, allowing them to share the extra cash with investors. Speculation that exporters will increase payouts also has boosted some of their stocks, helping the MSCI Russia gauge rebound 38 percent this year after plunging 49 percent in 2014.
“The weaker ruble helped exporters a great deal, and those who bet on higher payouts proved to be right,” Farid Abasov, an analyst at SBG Securities in London, said by phone on Monday. “The trend is here to stay for now as the short-term impact of the ruble devaluation is positive.”
Metal and mining companies have been among the biggest beneficiaries. At the end of 2014, OAO Novolipetsk Steel had $1.2 billion of cash and equivalents, while PAO Severstal had $1.9 billion of cash and near-cash items, data compiled by Bloomberg show. Novolipetsk has indicated payouts could grow as it links them to free cash flow and net income. Severstal’s 12-month dividend yield in December was the highest since at least 2005, data compiled by Bloomberg show.
OAO Gazprom, the natural-gas export monopoly, last month recommended a payout of 7.2 rubles, or 14 U.S. cents, per share, amounting to 90 percent of its 2014 profit under Russian accounting standards. Analysts surveyed by Bloomberg had forecast a dividend of 5 rubles per share. Polyus Gold said it will pay out at least 30 percent of its adjusted net income. The company reported about $1.5 billion in cash as of December.
OAO GMK Norilsk Nickel, which reported $2.8 billion in cash and near-cash items as of the end of 2014, said last month it may pay $2 billion as a final dividend for 2014 after making an interim payment.
“High dividends are the only way Russian companies can attract investors right now,” Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow, which oversees 175.4 billion rubles, said by phone.
While investors have been moving back into Russian assets, the economy is still forecast to enter its first recession since 2009. Sanctions linked to the Ukraine conflict continue to curb growth. And even though oil, Russia’s top export, has rebounded from a six-year low in January, Brent crude is selling for about half its five-year average price, and last traded at $66.35 a barrel.
“The high-dividend story will end soon, as companies will face eroding revenue amid the economic slowdown at home,” Konstantin Chernyshev, head of research at UralSib Capital in Moscow, said by phone. “Russian dividends for 2015 will decline as the economy slows.”
Some companies that depend on domestic demand have cut payouts. TV broadcaster CTC Media Inc. said last month that it decided not to declare a dividend in the second quarter after profit slumped 54 percent in the first three months of this year. State-controlled lender OAO Sberbank cut its 2014 dividend to the lowest level in five years.
Russia is reviewing dividend policies for state-controlled companies amid a push to increase payouts to help boost budget revenue.
State-run OAO Rosneft in March said it maintained its policy of paying out 25 percent of net income for 2014. OAO Lukoil last month said it raised dividends for past year. Both oil companies make at least three-quarters of their sales abroad, data compiled by Bloomberg show.
“On the top of the weaker ruble, Russian energy exporters got support from higher oil prices,” as Brent crude gained 16 percent this year, Johan Elmquist, who manages Russian equities at Tundra Fonder, said by phone on Monday. “The Russian investment case has changed. It’s no longer enough for investors to buy cheap assets, but they also want high dividend yields, and oil companies deliver on that.”
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