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Dividend opportunities in Europe outpace the UK

21st May 2014 Print

The income landscape has changed significantly in the last three years and UK investors searching for returns could look to European equities for a greater choice of yield, according to Alice Gaskell and Andreas Zoellinger, co-managers of the BlackRock Continental European Income Fund.

Today both highlighted the European dividend pool is significantly larger than the UK’s with a greater depth of stocks to choose from.  In the UK, the top 10 dividend companies represent 56% of all dividend income; Continental Europe is much less concentrated and the top 10 dividend companies’ only account for 23% of dividend income.  Of the 113 European companies combining a dividend yield of more than 4% and a market capitalisation of more than €1bn, over 80 are on the Continent, which provides more opportunities for real active investment.
Alice Gaskell, comments, “We have seen early signs of a recovery in the European consumer sector, with improving business confidence and falling unemployment, which has been positive for European equities. Dividend growth in the Continent is expected to be robust for the remainder of 2014 and into 2015.
In the Fund, whilst we have avoided the areas of the European market where dividend risk is higher (such as banks), our investments in infrastructure and real estate have benefitted both from an improving European economy and lower political risk.”
“Financial discipline remains strong in Europe and many companies have repaired their balance sheets, to such an extent, there is capacity to return capital to shareholders via special dividends, notably in the insurance sector.  After a period of restraint, 2014 will likely see more M&A activity and investment in general. Our focus on capital discipline and dividend sustainability is becoming increasingly important” adds, Andreas Zoellinger.

Tony Stenning, Head of UK Retail at BlackRock, comments, “Income investments play an important role for UK investors at every stage of life, providing the flexibility to adapt to all demands and help achieve financial goals by their ability to generate a regular stream of money and build wealth. Amongst Britons aged 25 - 44 years, 55% said building wealth is their top financial priority, while the older generation (45-64 year olds) were focused on generating extra income (39%) and growing their wealth (41%) given that three quarters (73%) said they want to fund a comfortable retirement.  Income investing, and particularly European income, provides the returns to make all these goals at different points in life a reality.”
As the BlackRock Continental European Income Fund celebrates its third birthday it has a net yield of of 3.8%. Since its inception in May 2011 it has had a total return of 38.8% and has 16% less risk than the market.

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