Russian dividend season about to open

Russian dividend season about to open
Russian corporates are set to distribute RUB1.3 trillion ($19.6bn) between mid-July and late August, on our numbers. Payments for the whole year are to total RUB2.0 trillion ($30.3bn)
By Ben Aris in Berlin February 20, 2019

Russian companies pay the highest dividends in the world. At the moment the average dividend yield is 6.8%, which is around twice that of the benchmark MSCI Emerging Markets (EM) index. With companies reporting their end of year earnings, boards across Russia are deciding how much of their gains they intend to share with shareholders.

“We expect the main dividend flows to come in the summer. Corporates are set to distribute RUB1.3 trillion ($19.6bn) between mid-July and late August, on our numbers. Payments for the whole year are to total RUB2.0 trillion ($30.3bn), we calculate, which is RUB153bn more than last year (the majority of increase comes from Sberbank’s number),” VTB Capital (VTBC) said in a note.

It is not clear why Russian owners are paying such generous dividends, but Kirill Chuykov, head of research at BCS Global Markets, told bne IntelliNews in a podcast that he believes it is the uncertainty caused both by the US sanctions regime and the question of who will replace President Vladimir Putin in 2024. As a result, investors are unwilling to invest and so are simply taking cash out now.

The MSCI Russia dividend yield has been higher, but recently returned to below the 7.0% mark in January after printing a fresh record high of 7.5% in December. However, the Russia dividend yield has spiked after the recent sell-off. The more general MSCI EM dividend yield declined to 3.3%. That makes the spread between Russia and the rest of the emerging markets dividend yield as wide as 400bp – almost the widest it has ever been.

Put another way: equity investors into a portfolio of stocks with the current average yield can earn a 6.8% return that is locked in without the value of the shares changing an iota. That is more than the 4.85% that Russia’s sovereign Eurobonds are currently paying.

As usual, major flows are scheduled for the summer, when two out of the three rubles distributed in a year are allocated. The remaining dividend flows mostly come in autumn.

The state-owned companies are playing an increasingly important role in Russia’s dividend payout story. In addition to raising taxes on the biggest honey pot, mostly raw material producers, the cash-strapped government has demanded that they pay out 50% of their earnings as dividends. The Ministry of Finance has been trying to enforce the rule, but many of the biggest companies, such as Rosneft, had begged off, claiming their heavy investment programmes make this impossible. However, several of the most important companies have been coughing up – the retail banking giant Sberbank first among them.

“For the whole year, Russian public companies are to offer RUB2.0 trillion, we believe, up +8% from 2017, driving an additional flow of RUB153bn. The locomotive of the growth is Sberbank, with dividends up to RUB405bn on the back of a further increase in the payout ratio (to 49%, from 36% last year, assuming [its Turkish subsidiary] DenizBank sale has been closed by the time of the company’s decision on dividends, scheduled for early April). Gazprom is raising its dividend per share (DPS) to RUB10.40, resulting in absolute payments of RUB239bn. Despite that, the company remains behind [privately owned metal company] Norilsk Nickel, with total payments of RUB260bn,” Ilya Piterskiy of VTBC said.

The gas giant’s oil arm, Gazprom Neft, is another state-owned enterprises (SOE) making a notable increase to its dividend flow, up to RUB133bn (+50% vs. last year).

Among the less enthusiastic is oil minor Tatneft (RUB84bn vs. RUB161bn in 2017), as the company has already paid 3Q18 interim dividends. Severstal (down to RUB94bn) and Alrosa (RUB71bn) cut their payments as well, reports VTBC.

“We note that 14 companies out of the top 15 with the highest absolute payments are ‘exporters’. Privately owned oil company Lukoil (RUB163bn) and NLMK (RUB109bn) have joined the leaders.”

The Russian financial market is continuing to deliver a high dividend yield, with the RTS next 12-month dividend yield at 6.6%, according to VTBC’s numbers. The majority of exporters’ dividends are above the Eurobond yield.

Among them, VTBC highlights the long standing highest payer, privately owned oil company Surgutneftegas prefs (16%), Norilsk Nickel (12%), Magnitogorsk Iron and Steel Works (MMK) (11%), steel mill Severstal (10%), Novolipetsk Metallurgical Kombinat (NLMK) (10%) and Alrosa (10%) with double-digit yields.

As for domestic companies, rail company Globaltrans (14%) remains one of the leaders.

This year, Moscow Exchange (MOEX) (13%) is also offering a double-digit yield, but this is likely to be a one-off as the company returns to interim dividends.

Russian utility Enel Russia (13%), LSR Group (LSR) (12%), utility FSK (11%), pipemaker HMS Group (11%), children's toy store Detsky Mir (11%) and Sberbank prefs (10%) are all also paying double digit dividend yields.

 

Russia's top 20 highest dividend yields

 
   

Dividend Yield

company

NTM

FY18A

FY19

FY20

Surgutneftegas, pref.

16.10%

3.40%

16.10%

7.30%

Globaltrans, GDR

13.80%

13.90%

13.80%

12

Enel Russia, ord.

13.30%

14.10%

13.30%

13

Moscow Exch, ord.

13.00%

6.20%

13.00%

9.50%

Norilsk Nickel, ord.

12.10%

10.10%

12.10%

13

LSR Group, GDR

12.00%

11.80%

12.00%

12

FSK, ord.

11.10%

9.00%

11.10%

10

HMS, GDR

11.10%

14.20%

14.30%

11

MMK, ord.

10.90%

12.20%

10.90%

11

Detsky Mir, ord

10.50%

9.30%

10.50%

12

NLMK, ord.

10.30%

12.40%

11.80%

8.60%

Sberbank, pref.

10.20%

6.80%

10.20%

14

Alrosa, ord.

10.10%

11.60%

10.10%

14

Severstal, ord.

9.90%

14.30%

9.90%

6.70%

Rushydro, ord.

9.30%

5.20%

9.30%

7.80%

Sberbank, ord.

8.80%

5.90%

8.80%

12

Phosagro, GDR

8.50%

4.20%

8.50%

7.50%

Gazprom Neft, ord.

8.20%

5.50%

8.20%

9.20%

Unipro, ord.

7.90%

7.90%

7.90%

11

NCSP, GDR

7.80%

5.30%

10.10%

8.00%

source: Bloomberg consensus

   

 

Features

Dismiss