Dividend Monitor – 2012
Comment of the Day

March 26 2012

Commentary by Eoin Treacy

Dividend Monitor – 2012

Thanks to subscriber for this interesting report from BCS Financial Group. Here is a section:
We are launching the publication of 50 Russian stocks in our focus list. The aim of the Monitor is to present interesting dividend plays on the Russian equity market, both in the near term (dividends for 2011 with record dates in April-May) and in the longer run (2012 – 2015). Our list of top dividend ideas includes 14 stocks, for which we expect the remain dividend for 2011 (paid as annual dividend) to yield over 4%. To aid the reader, we also present a dividend calendar for 2012, which comprises the dividend record dates of when companies closed their shareholders' registers last year and our estimates record dates in 2012.

Generally, the Russian corporate sector continues to show a misunderstanding of the purpose of the dividend payments. Most companies have their policies setting dividend payments as a certain percentage of net income (a minimum % of net income). Unlike western markets, in Russia there is still no differentiation between regular dividends (a stable dividend payment set in absolute terms on a per share basis, which companies commit themselves to maintain adjusted for inflation) and extraordinary dividend distribution of cash proceeds from the sale of assets or return of excessive cash to shareholders). As a result, Russian corporate dividend payments remain volatile, peaking at the top of the commodity cycle and bottoming when the oil price plunges (together with the price of traded metals and soft commodities). For an example, the Russian corporate sector distributed dividend payments of US$18.1bn for 2007, plunging to US$12.0bn in 2008. This variation does not bode well for domestic equity market, making Russia much more volatile compared with emerging markets peers.

In 2011, Russia enjoyed a high oil price, reasonable growth in GDP and a pre-election period characterized by growth in social spending. As a result, Russia companies are set to distribute record high dividends of US$31.9bn for 2011. The figure implies 31% growth from the 2010 level with major contributors to this growth being the oil and gas and banking sectors. The key drivers in these sectors were Gazprom and Sberbank. The dividend payment of both companies for 2011 will increase two-fold compared to 2010.

Eoin Treacy's view Russia is highly dependent on energy exports At least partially as a result, the correlation of the RTSI with West Texas Intermediate crude oil prices remains high. The market generally trades at a low valuation reflecting the high perception of risk among minority shareholders. However as company coffers benefit from the comparatively high energy prices, the potential for additional dividend pay outs has certainly increased.

The Index has been consolidating above the 200-day MA for the last month and a sustained move below 1600 would be required to question potential for additional upside.

Sberbank has been consolidating in the region of RUB100 since the beginning of the month and sustained move below RUB90 would be required to check potential for a successful upward break.

Gazprom has held a progression of higher major reaction lows since testing the 2010 nadir in October. It found near-term support in the region of $12 last week and a sustained move below that area would be required to check potential for additional higher to lateral ranging.

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