Shareholders press for higher dividends, but should companies invest?


Bourse prices are reaching new record highs and companies, under pressure from activist shareholders, are promising higher dividends.  But market analysts are warning that companies should invest their profits instead, the Telegraaf reported on Monday.

‘It is begining to affect some companies,’ said Marcel Vogel of Mint Tower Capital Management. ‘Dividends are being increased in an effort to please shareholders who are putting pressure on management. The question remains can companies maintain that payout in the future,’ he said.

Earnings of companies listed on Amsterdam’s AEX index rose by 23% on an annual basis in the first three months of the year, the sharpest increase since 2010.

Dividends were not a deciding factor in the past but with very low interest on savings they have become important for investors.

Dividend increases have become more common for companies of all sizes. Companies subject to hostile takeover attempts, such as AkzoNobel and Unilever, are particularly vulnerable.


Paints and coatings group AkzoNobel plans to hive off its chemicals division and to double its dividend. Detergents and personal care products combine Unilever is raising its dividend by 12% and has initiated a €5bn share buy-back, an advantage to existing investors.

‘European economic growth is good right now and companies are benefiting,’ said Will James, director of Standard Lufe Investments’ European Equity Income Fund. ‘But it is not really wise to pay out all cash in the form of dividends. There are a lot of uncertainties in the market,’ he warned.

Jasper Jansen of shareholders’association VEB concurs. ‘Paying out higher dividends every year does not contribute to the value of a company. Managers should consider this, and not react to pressure from shareholders. Certainly not when the company may have to resort to borrowing money to pay the dividend down the road. That is risky,’ he concluded.

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