Dividends fall after hitting 10% yield, says futures manager

CalculatingDividends are likely to fall once a company's dividend yield reaches 10%, research by a French fund management firm suggests.

Jad Comair, founder of Melanion Capital, says: “A rule of thumb suggests that when a company’s dividend yield reaches 10%, this is almost always followed by a dividend cut.”

Telefonica, the Spanish telecoms company, cut its 2012 dividend, which was payable in two legs, at 14% and France telecom reduced its dividend by 45% when the yield reached 11%.

There are exceptions. For example, Mittal cut at 7%.

Telefonica cut its dividend last year, though it has reinstated the dividend for 2013. 

The market is forecasting a countinous decrease in dividend amounts in the Euro Stoxx 50 for the next 10 years, though Comair thinks the markets are wrong, at least for next year. “This year has been good for companies with some positive surprises. This year’s good results are next year’s dividends,” he says.

Melanion recently launched what it thinks is the world’s first dividend futures fund.

Comair also expects banks to start repaying strong dividends in 2014 (payable in 2015) which should offer a strong recovery for the dividend amount of the Euro Stoxx50.

The dividend yield for the Euro Stoxx 50 as of July 31, 2013, was 3.37%.

Dividends have been a popular investment theme in recent years. BlackRock reports that exchange-traded products (ETPs) that focus on dividend equities, with a total of $87 billion (€65 billion) in assets, totaled 5.7% of the ETP market at the end of the second quarter 2012, compared to 2.9% in 2010.

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