Page 32 - bne_Magazine_September_2018

32 I Special focus bne September 2018
Total returns from dividend yielding stocks out pace the market
Russia pays the highest dividends in the world, Moscow Exchange (MOEX) told bne Intellinews in an interview, and Russia’s leading bourse is actively selling its best story to international investors.
Bloomberg estimates the MSCI Russia index yields at 5.5% – nearly twice the MSCI EM benchmark average dividend yield and more than any other emerging market.
“As you can see from the charts, Russia has been a hidden income story from dividend payments,” says Tom O'Brien, head of international sales at MOEX. “If you reinvest the dividends then the real total returns from investing into dividend yielding stocks handsomely outperform the index.”
In order to track this class of share the MOEX calculates four total return indices: two based on the ruble denominated Moscow Interbank Currency Exchange (MICEX) index and two based on its sister index, the dollar denomi- nated Russia Trading System (RTS) index. One version of these pairs tracks the absolute return and second one assumes the investor pays a nominal 15% tax on their dividend payouts.
“Starting from the beginning of 2016, the benefit of the RTS Total Return Index, which includes reinvested dividends, verses the plain vanilla RTS Index has been growing constantly and currently the difference is now over 17% YTD,” says O’Brien.
RTS index vs dividend stocks basket performance
RTS Total Return vs. RTS Index
That bodes well for the equity market performance in the autumn, argues BCS GM (putting aside the political risks related to US sanctions), as companies are front-loading their cash flows to pump into dividends.
“The market is inexpensive overall (we continue to point at 16% fundamental upside for the RTS index to our year-end target of 1,350). But it also points at strong front-loaded cash flow genera- tion at this stage of the cycle – by metals names in particular, and the steel names foremost,” Vyacheslav Smolyaninov, chief strategist and deputy head of research at BCS GM told bne IntelliNews. “We count on the ongoing the second quarter earnings season to convince investors that our picks are truly out- standing dividend stories in Russia
right now.”
Notably, most of the increases this sea- son came from the oil and gas sector, with biggest names paying RUB700bn for 2017 in dividends, up by 24% y/y.
State-controlled companies increased their dividend payments this season too, with a 19% y/y hike to RUB697bn, or
an average of 35% of profit. The federal budget got RUB270bn from the divi- dends paid by state-controlled compa- nies but hopes to get significantly more next year.
With the market capitalisation domi- nated by the oil and gas sector it is no surprise that hydrocarbon producers account for 42% of all dividends, fol- lowed by metals and mining (27% of the total or RUB455bn), paying out almost their entire free cash flow. Other sectors paying a lot of dividends include transportation companies (8% of the total or RUB139bn), and telecoms and utilities (7% and 6% of the total, respectively).
And with both the share of profits and the number of companies offering divi- dends rising each year the prospects for the next dividend season that has just started are even better than the season that just closed.
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