Russia investors look to dividends as defensive play in volatile market

By bne IntelliNews February 27, 2008

Graham Stack in Moscow -

With markets volatile, investors in Russia are starting to look to stocks paying out large dividends as a defensive play. And right on cue, VTB head Andrei Kostin announced February 12 that Russia's second-largest bank was considering paying out not less than 20% of its profits as dividends this year. The statement caused VTB share price to leap 7.4%.

It's a sure sign of difficult times when Russian investors start focusing on company dividends. For most of the 21st century, Russian stock market returns have been on the level of cricket scores. Dividends paid by Russian companies, on the other hand, make Scrooge look like Bill Gates. However, with the Russian stock slumping for the second year in succession, dividends can provide some small consolation, and in this context the VTB announcement was a welcome surprise.

"That puts VTB firmly on our list of high dividend stocks," says Renaissance Capital's Tom Mundy. In a report published a week before Kostin's burst of generosity, Renaissance Capital compiled a list of nine high-dividend stocks that are both defensive and fairly liquid, focusing on undervalued oil stocks - such as TNK-BP or Surgutneftegaz - coal, fertiliser and steel producers, fixed-line telecomunication firm's preferred shares or stocks of companies exposed to consumer demand.


However, state-owned VTB's announcement of planned larger dividends is likely to be a one-off case. In fact, analysts are puzzling over the motives. VTB famously raised $9.5bn with its "people's IPO" of 22.5% in May 2007. "VTB raised a whole lot of cash and this is a little like saying 'we don't know what to with it'," says Mundy. "Although, given that they have all this cash, it's not the worst thing they can do with it."

Analysts question whether there is some political angle to the move. The VTB share price has bombed following its much-hyped IPO, recently falling to 30% under its IPO price. This puts considerable pressure on CEO Kostin, because the government actively encouraged small-scale investors to buy shares in the bank. Disgruntled investors have started to organize and demand a government buy-back at IPO prices. The looming elections magnify any such discontent, hence Kostin's attempt to boost the stock perhaps.

In addition, the Federal Agency for State Property (Rosimuschestvo) is pushing state-owned companies to boost their dividends payments for the good of the budget. State-owned companies are traditionally regular dividend payers, says Tatiana Dolgopiatova of the Higher School of Economics. For 2007, Rosimuschestvo is recommending state companies pay out 25% of their profits as dividends, the daily Vedomosti reported on February 27, up from the 10% recommended in 2004. State companies usually pay out a good deal less in reality than Rosimuschestvo recommends, Vedomosti noted.

The all-time Russian record for dividend payments is held by Roman Abramovich's Sibneft - a record it's likely to keep for a long time yet. Before being sold to Gazprom, Sibneft paid out 100% of its profits in dividends. The move, in the opinion of most analysts, was initiated not for the benefit of minority investors, but for Sibneft's majority owners to take one last big payout.

Send comments to The Editor

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.