PARIS (Reuters) - Investors in European media groups have reason to hope for fatter dividend payouts as companies with stronger-than-expected earnings seek to reward them for bearing with slow topline growth.
Some of the world’s top advertising companies told Reuters this week they were actively considering raising their dividend, especially as such payouts assumed more importance in an environment of low returns on other asset classes.
Advertising agencies WPP (WPP.L) and Publicis (PUBP.PA) told the Reuters Global Media Summit in London and Paris they might raise their dividend, while outdoor advertising group JCDecaux (JCDX.PA) said it was likely to consider resuming payments.
“At times like these when bond yields are so low and equity dividends are so high, equities make a bigger difference to the total shareholder returns, so dividend increases make a bigger difference to total shareholder return,” said WPP Chief Executive Martin Sorrell.
”So, I think it’s probably likely ... in a couple of weeks’ time, we’re going to ask about this very closely, and I think we’ll probably stimulate the dividend rate. Because that seems to be the thing that institutions favor.
WPP’s 2009 dividend yield is 2.48 percent, more in line with the 2.39 percent average payout of European technology companies -- which are seen as growth prospects -- than the European media average of 4.12 percent, according to Thomson Reuters data.
After two years of cost-cutting, WPP, the world’s biggest ad agency group, reported a 33 percent increase in first-half operating profit on a 2.5 percent sales rise, and in October said it was on course to exceed its 2010 profit target.
Maurice Levy, CEO of world number-three advertising agency Publicis (PUBP.PA), told Reuters he wanted to increase his company’s dividend payout ratio over time to 40 percent of earnings over time from 30 percent currently.
“We believe this is something which will take time because we want to do it progressively and cautiously,” he said.
Thomas Singlehurst, media analyst at Citi, said media companies were now keen to show a more disciplined approach to allocating capital.
“Media companies historically don’t have the best track record on capital allocation. By committing to a dividend it is a way for companies to signal to the market that they are not going to do anything stupid,” he said.
JCDecaux told the Reuters summit the company would probably consider resuming dividend payments for the first time in three years, lifting the company’s shares by 5 percent on Thursday.
“We continue to believe that this is a growth company, but we are likely to consider to revisit these questions because of the strong generation of cash flow,” he said.
A London-based media analyst said: “Advertising companies are still seen as growth stocks, but since we’ve been in a lower-grade economic recovery, the top line is still not great.”
“People don’t have high expectations for growth,” added the analyst, who did not want to be named because she was not authorized to speak to the media.
JCDecaux is one of only three major media companies in Europe not to pay a dividend.
The other two, broadcasters ITV (ITV.L) and ProSiebenSat.1 PSMG_p.DE, both signaled at an investor conference last month they would consider reinstating them -- although they made no promises.
Alongside unexpectedly strong balance sheets, a lack of attractive acquisition targets is behind the shift in attitude -- although merger activity across the sector may soon improve, some executives at the summit suggested.
“What will be interesting to see is when these M&A opportunities do come back will the companies be able to stick to their word on dividends,” said Singlehurst.
Editing by Hans Peters