19 November 2019 Nordea Markets and Corporate & Investment Banking How corporates distribute capital The way in which corporates distribute capital to investors and to what extent, in both absolute terms and relative to market cap, differs a lot across regions and sectors. Buybacks are heavily favoured in North America, constituting around ~60% of total payouts since 2005, while Europe, the Nordics and Asia are at 20-30%. Financials has been the sector with the biggest payouts, while Information Technology has been the biggest user of buybacks. In this section, we also review the top ten companies active in share buybacks by region. This study focuses on dividends and buybacks in absolute and relative terms A study depicting how corporates distribute capital to investors In this section we analyse how corporates around the world return capital to investors, and how they have done so historically. We show the levels of dividends and buybacks in relation to market cap as well as in absolute figures, comparing regions and sectors with each other and over time. In order to keep things as simple as possible, we begin by listing the most common terms used: y Dividends = The dollar value of all dividends paid y Buybacks = The dollar value spent on buybacks (gross figure, unaccounted for potential sales of treasury shares) y Total payout or capital transfer = The sum of dividends and buybacks When expressing a figure as a ratio – for example dividend ratio or buyback ratio – we are exclusively talking about a company's, sector's or region's dividends, buybacks or total payout as a share of its total market cap, unless specifically stated otherwise. So the dividend ratio for North America would be equal to the sum of all dividends for all North American companies in a given year divided by their collective market cap at year end. Analysis mainly built on the STOXX Global 1800 Index The bulk of the analysis is built on the STOXX Global 1800 Index with rolling constituents, consisting of 600 European, 600 North American and 600 Asia Pacific stocks and dating from 2005 to 2018. The stock index does not include any Chinese companies, so to include this region in our analysis we have added some 600 Chinese equities, where companies have been selected based on market cap. The results for Asia in this report therefore include China. We begin by looking at the topic from a regional perspective, displaying results for North America, Europe, the Nordics and Asia. Following this, we take a different perspective and present the results on a sector-basis, highlighting key differences and focusing on three specific sectors – Financials, Consumer Staples and Consumer Discretionary – meant to represent the best, the average and the worst sector in terms of average total payout ratio. Major regional differences in payout levels and preferred method In the following section we break down how payout levels differ regionally, and how the way in which capital is distributed differs. As a crude overview, we begin with the two charts below. The one on the left hand side shows the average total payout ratio per region, split up into buyback ratio and dividend ratio, along with the average dollar value of total capital transfers, denominated in USD billions. The chart on the right hand side shows how the regional total payout ratios have varied over time, from 2005 to 2018. 11
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