Goodbye to dividends? Companies lower them

One of the main claims that small investors have to enter equities are dividends. It is the payment that listed companies make to their shareholders, for the benefits of their businesses. And what in Spain reaches a yield of up to 10% in the best stock market proposals. However, this trend may be moderated as a consequence of the instability of the stock markets at the beginning of the year, which may lead to accounting adjustments that affect this remuneration payment.

The first of the companies that can lower dividends this year is Repsol. Its delicate business situation as a result of the depreciation of its shares due to the fall in the price of oil may be the trigger for savers to receive a less generous remuneration from now on. Currently its profitability is close to 8%, with two payments of approximately 0,50 euros per year. This strategy encourages many savers to opt for this value to create a savings bag for the next few years.

The effect on the depreciation of listed companies has not been long in coming after the serious drop in their prices. The first one that can move is the Spanish oil company Repsol. So much so, that it seems that the reduction of the dividend is a matter of little time, and as a consequence of its strategy to adjust its business accounts.

Despite this, a percentage of the amount of the cut in dividends that shareholders would suffer is not confirmed. And if the news is confirmed, they would be left with a payment below 1 euros. Perhaps around half a euro for the whole year, which would generate a 50% decrease in profitability.

Change of trend in companies?

Although savers are alarmed at the cut that dividends may suffer from now on, it must be remembered that it is not an unprecedented situation in Spanish equities. Not in vain, Banco Santander has already made this adjustment in its remuneration process when announcing last year the reduction of its dividend of 0,60 euros per year in its optional modality to 0,20 euros with one in cash. In this case, above half.

And as a consequence of this measure, other national banks have chosen the same path to contain the expenses for this remuneration distribution. The first effect that will affect your personal accounts is that you will no longer receive such competitive payments, at least in a large part of the Ibex-35 companies, but you should get used to the idea of ​​more modest amounts, probably below the 5% barrier.

For this situation to have been reached, two clear warnings had to be issued from the economic authorities. On the one hand, that the European Central Bank (ECB) has asked European banks for caution in the payment of dividends. And on the other hand, these drastic recommendations have also been imposed from the national monetary bodies. Specifically, from the Bank of Spain - through a letter to the employers -, asked the bank limit your cash dividend to 25% of profit.

In this sense, the banking sector has been the pioneer in lowering dividend yields. Now it seems that it is the turn of the oil companies, greatly affected by the collapse of the equity markets, and no one rules out its reaching other business segments. And some candidates who have many ballots to continue this trend are companies related to raw materials. Arcelor and Acerinox are under surveillance, after their price quotation has reached historic mininos. Who will be next?

How do these measures transfer to the investor?

The shareholders of these companies will be the first to notice these changes in the payment of dividends. Not in vain, less money will go into your checking accounts each year. And that it can influence that they abandon (sell their shares) the positions to seek more the profitability of their shares than this fixed payment. Even with very aggressive movements that can affect the price of these companies.

To verify the real effects of this measure, it is enough to remember that individuals who buy Repsol shares right now (on an average price of 9 euros), your remuneration for the collection of dividends will be double with respect to those who opened positions just a year ago. Consequently, the new shareholders would have a much higher annual return than the old ones. And from this general perspective, it will be a much more profitable operation for savings.

This impact on the shares of the Spanish continuous market will affect more defensive investors much more than those that are merely speculative, or at least those who operate with much shorter terms of permanence. It can even affect countless Spanish families that for some years had their savings deposited in the companies that distributed the highest dividends. Not surprisingly, you may find that your payments will drop significantly.

The Spanish stock market, the most profitable by dividends

Of course, there is an indisputable fact, and that is that the Spanish stock market is one of the most profitable in the old continent for this concept. La Ibex dividend yield is currently over 4%, one of the highest of the great international indices. Firms such as Repsol, with an expected dividend yield of 2016% in 9, and Telefónica, Red Eléctrica, Enagás and Endesa, with percentages above 6%, are some of those chosen to opt for this remuneration strategy.

In general, some sectors are more sensitive than others to formalize these payments with greater security. Electricity, financial sector, highways and oil companies are placed in the best positions to distribute dividends among its shareholders. Although you can, in all probability, not with the intensity of the preceding exercises. At least in some of these companies. From here, a series of scenarios are opened by the holders of these actions.

Strategy changes

As a consequence of this new scenario that is presented to a large part of retail investors, they will have no choice but to change your investment strategy, to channel it correctly and according to your interests. They have some guidelines for action that can limit the reduction in dividends, although with greater difficulty than in other times. And in any case, you will have to learn to live with a significantly tighter pay, and in many cases unsatisfactory.

Of course, it is a new problem that you face in the equity markets. This one of new conception, and hence it is much more problematic to solve it with some success, or at least with a satisfactory operation for your interests. In any case, it seems that the 10% yields provided by these values ​​are on the verge of extinction in the medium and long term. And how could it be otherwise, It will be your turn to move to avoid being harmed in your interests as a small investor

To obtain the objectives, you will have no choice but to follow with discipline some simple guidelines for behavior in the financial markets. With a goal that will be none other than to continue with the same, or similar, purchasing power as up to now, and derived from the collection of these payments for company benefits.

• You can take refuge in companies that maintain their high dividends. Perhaps not with the margins of yesteryear, but with certainty that they will be above 5%, and as a consequence of the good business results that they will present every year.
• As an alternative investment you can opt for some equity investment fund that it is based on companies that distribute dividends among their shareholders, and that in any case provide greater security to the clients' investment portfolio.
• It may be the right time to opt for others different parameters in the choice of values of your investment portfolio, where dividends play a less decisive role in its configuration.
• If you are not excessively greedy, these securities will remain profitable regardless, and of course, with a much more satisfactory performance than fixed income products (deposits, bank notes, bonds, etc.), which rarely exceed the 1% barrier.
• Keep in mind that dividends will they are discounted directly from your quote, and as a consequence of this operation the real price of the shares is diluted. Although this effect, normally, can be amortized in the long term.
• If you are going to keep your investment portfolio for many years it is really convenient that you check it regularly, because in all probability dividends will be affected in the coming months, and it may be the definitive moment to modify their composition.
• Even if they lower the value of the dividends, you may still be interested in the operation for the tax treatment that their operations entail. In this sense, it is advisable that you consult with your tax advisor.
• You should be aware of the meetings of shareholders' meetings, where possible agreements on the implementation of these measures will be taken, and know what action you will take in these cases.
• And finally, try to rush the last moves of these fixed and guaranteed payments, before they pass to a better life and are depreciated by listed companies. Especially in a bearish scenario in international stock markets, like the one that has been developing during the last three months.