Financial stocks to lead European dividend rebound
* Banks, insurers lead rise in market bets on future dividends
* StarMine shows insurers the better bet
* Fund managers cite their more stable payout
By Francesco Canepa
LONDON, Sept 10 (Reuters) - Europe's financial companies are expected to lead a rise in stock market dividends over the next four years and insurers are best placed to start grabbing the money chasing those payouts.
Higher dividends from heavyweight financial shares are poised to boost the yield of the entire European equity market, allowing a sector, widely snubbed by investors during the global financial crisis, to lure a growing pool of funds that look for a steady income from shares.
Analysts have upped dividend forecasts for European insurers more than for any other major industry group in the past month after larger-than-expected payout increases by firms including Britain's Legal & General, StarMine data showed.
With heavyweight banks also posting healthier profits, payout forecasts from the euro zone blue chip Euro STOXX 50 index for the next three years, as seen in the price of dividend futures , have risen 8 percent to 11 percent in the past two months.
"There is a developing theme of companies, be they insurers or banks ... having good potential for dividend growth for the next three to five years," said Samuel Morse, who manages 3.3 billion pounds ($5.2 billion) across two Fidelity equity funds.
A 10 percent surge since July in the December 2016 dividend future contract, a bet on payouts in three years, shows investors expect the increase to last, Charles de Boissezon, head of global equity flow engineering and advisory at Societe Generale, said.
"And financials are big contributors in terms of dividends for the Euro STOXX 50 index," he added. SocGen expects financial stocks to contribute 30 percent of all Euro STOXX 50 dividends in 2015, up from 27 percent now.
Buying stocks for their dividends has been an increasingly popular theme in the past year-and-a-half as investors look for bond-like investments in equities, and this trend is likely to continue even as bond yields in some developed markets rise.
European equity income funds have 134 billion euros ($178 billion) in assets and have grown faster than the rest of the industry since the start of 2012, Lipper data showed.
INSURERS VS BANKS
While insurers and banks both offer a dividend yield - which compares the size of the payout to the share price - of around 4 percent, Thomson Reuters Datastream showed, some equity fund managers who focus on dividend said they considered insurers the better bet for the moment.
They said insurers were further ahead in the process of fixing their balance sheets and had a better record of sustaining high dividend payouts, while banks face further reviews on their capital position and political pressure to hold off from paying a dividend.
"The banks sector has become slightly more interesting but one should remain cautious on the outlook for dividend in the short term," said Will James, manager of Standard Life's European Equity Income fund.
"I don't think we are going to see a big growth in dividend payout until 2015 or even 2016."
James holds reinsurer Swiss Re and insurer Axa , which both cut dividends during the financial crisis but increased payouts this year as balance sheets strengthened.
The insurance sector's dividend yield has been above market average for the past six years, while banks have seen payouts swing sharply along with the economic cycle, Datastream showed.
And that stability of payout was crucial for Joerg de Vries-Hippen, who manages 600 million euros in the Allianz European Equity Income fund and holds insurers Allianz , Munich Re and SCOR.
"The stocks that we like are those that pay dividends for a long time." ($1 = 0.6361 British pounds) ($1 = 0.7546 euros) ($1 = 0.6361 British pounds) (Editing by Stephen Nisbet)
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