Sector By Sector

Of all the DJ Stoxx supersectors, oil and gas is the one that has so far come closest to showing the desirable characteristic of a steady and steadily increasing payout ratio. Its dividend yield is now close to 5% per annum, and the stocks in this sector index—BP, Shell and Total are the largest three, collectively accounting for nearly 60% in weight—form key holdings in many investors’ equity portfolios. However, even here, dividends have been under some pressure. There was major speculation earlier this year that BP would be forced to cut its dividend for the first time since 1992. In the end the company maintained its payout in a 4 March announcement that was close to the equity market bottom. Coincidence? Probably not, in view of the importance of the companies in this sector to the market as a whole.

The basic resources sector, a great performer for much of this decade, has hit harder times since 2008. Of the big four stocks in the index—Anglo American, ArcelorMittal, BHP Billiton and Rio Tinto, which collectively account for a 67% weighing—the first two have cut their payouts this year in response to the global recession. The result can be seen in the chart, with the yield ratio declining from over 4%, if calculated using the cumulative 12-month payout as at the end of 2008, to under 3% now. The chemicals sector now offers a better yield. Its recent chart blip is explained by a shift in the largest sector payouts from April last year to May this year, which affected the 12-month comparison. Bayer, the biggest company in the sector, increased its dividend by 3.7% this year.

Recent dividend cuts are evident in both the DJ Stoxx 600 Industrials constituent sectors. In construction and materials the two French giants, Lafarge and Saint-Gobain, were forced to reduce payouts earlier this year, while raising further equity capital. Other companies in the sector have taken to paying dividends in shares, rather than cash. In the industrial goods and services supersector, while the two heavyweights, Siemens and ABB, have so far maintained their distributions, other, smaller companies have been cutting them.

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