Dividend Bets Trailing Europe Stocks Highlight Draghi Skepticism
By Inyoung Hwang and Sofia Horta E Costa
Has the stock rally spurred by Mario Draghi?s quantitative easing gone too far? Based on financial contracts betting on future dividend rates, the answer is yes.
While the Euro Stoxx 50 Index has climbed 17 percent since the start of the year, expectations for dividend growth have risen about one-third as fast, according to futures. Contracts allowing traders to speculate on dividend levels in the benchmark gauge trade on the Eurex exchange.
The gap, currently the widest of any time in the past six years, reflects skepticism that European Central Bank stimulus will do as much for corporate profits and the economy as it has for asset prices.
?Dividends are earnings driven, they?re not QE driven,? Antoine Iskandar, who helps oversee more than $100 million at Melanion Capital SAS, said by phone from Paris. ?Draghi won?t come and buy dividend futures.?
Some of Europe?s biggest sources of dividend largesse, including Banco Santander SA and Eni SpA, have slashed payouts this year.
Analysts have lowered 2015 profit projections since the beginning of the year. They now predict Stoxx Europe 600 Index companies will boost earnings by 5.9 percent this year, down from estimates for a 9.7 percent increase in January.