19 November 2019 Nordea Markets and Corporate & Investment Banking we choose Consumer Discretionary. Now, the observant reader will note that according to the chart, Real Estate is actually the sector with the lowest total payout ratio. However, given the small differences and the fact that Consumer Discretionary is about four times the size of Real Estate in terms of average yearly total payout, we highlight Consumer Discretionary instead. First is Financials – the sector with the highest average total payout ratio since 2005. The two charts below show the total payout and total payout ratio, as well as dividends and buybacks as a share of total payout from 2005 to 2018. YEARLY PAYOUT BY TYPE - FINANCIALS 600 500 400 300 200 100 0 DIVIDEND AND BUYBACK AS A SHARE OF TOTAL PAYOUT Dividends Source: FactSet and Nordea Total payout ratio (rhs) Dividends Source: FactSet and Nordea Financials took a hard hit during the financial crisis but has been slowly climbing back In the chart on the left hand side we see how total payout levels took a hard hit from 2007 to 2010. It took until 2012 for payouts to start increasing, which it has done ever since. In 2018 total payout value surpassed its previous high in 2007, with a staggering amount of over USD 500bn - only slightly less than the total GDP of Sweden at the time. The split between dividends and buybacks has been rather stable at around 40-50% with the exception of 2008 and 2009. Much unlike the other sectors that heavily decreased their buybacks while largely maintaining their dividend levels, the financial industry reduced its dividends but increased its buybacks in 2008. This may have reflected an effort to support a falling share price. The next sector we look at is Consumer Staples, representing the average sector in terms of total payout ratio. Like the rest of the market, the sector took a hit during the financial crisis. It is evident from the chart on the left hand side, however, that Consumer Staples fared well and did not decrease its total payout too drastically. YEARLY PAYOUT BY TYPE - CONSUMER STAPLES 250 200 150 100 50 0 DIVIDEND AND BUYBACK AS A SHARE OF TOTAL PAYOUT Dividends Source: FactSet and Nordea Total payout ratio (rhs) Dividends Source: FactSet and Nordea Consumer Staples were much less affected by the financial crisis than many other sectors During the financial crisis dividends remained largely the same, but the brake was pulled on share buybacks to some extent, declining by about 50% from the previous year. Since 2009 the sector has seen a steady increase in its capital distribution to shareholders, maintaining a split between dividends and buybacks of around 60% and 40% respectively in recent years. 17
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