The Spanish stock market is shining these days. The Ibex 35 exceeds 10,100 points for the first time in five years and the feeling, without reaching euphoria, is one of relief after a 2023 that was much worse. In the recent Christmas meeting with which the BME market operator said goodbye to the year at the public office in Madrid, its managers did not fail to emphasize the exceptionality of the financial year just concluded in terms of the performance of quotations The optimism was also justified by a not so obvious aspect: companies have returned to distributing dividends normally.
The listed companies have taken three years to assimilate the blow of the covid and have finally recovered in 2023 the relaxation in the distribution of their profits among the shareholders. After a 40% drop in the payment of these dividends in 2020, the volume of remuneration is now comparable to 2019 levels, albeit slightly lower. They exceed the level of 27,000 million euros, above which they had been year after year since 2015 and until the pandemic arrived.
Over the course of the year just concluded, they distributed 27,433 million euros to their shareholders. The figure is not only 18% higher than the previous year, but the culmination of a progressive recovery. Dividends were close to 30,000 million before the pandemic and sank in a year to 18,000 million. Since then they have already risen by more than 50%, according to BME’s annual reports.
The distribution of dividends depends above all on the good performance of the company, but also on the need to maintain the attractiveness of the share. The pandemic put many listed companies in survival mode and forced in some cases, such as Aena, to suspend dividends out of prudence. The subsequent recovery, with a war in Ukraine in the middle, was accompanied by inflation, increases in price in the energy sector and increases in interest rates. Added to the rise in consumption, the result has been an explosive return of earnings and, already in 2023, the return of companies to the race to offer the best dividends.
BME calculations show that, in this century, listed companies have distributed dividends for close to 540,000 million euros. Between 2000 and 2005 the annual average was 10,893 million euros, until in 2006 the figure soared to 21,810 million and, since then, it always exceeded 21,000 million until it exceeded 27,000 million in 2015.
The latest dividends are a good thermometer of the state of the companies, both for 2023, because some payments are based on the results of the current year, and for 2022, because those corresponding to the profit from the previous year. Not only the large corporations of the Ibex 35 are concerned, but also many more modest companies, since 128 companies are listed on the continuous market, ranging from the 116,376 million capitalization of Inditex to the barely 6 million value of Nyesa, and the long of list of those known in analyst jargon as rampoines.
In the absence of reporting the annual results in February, at the very least, the Ibex listed companies increased their profit by 22% in the third quarter of 2023 compared to the same period of the previous year, encouraged by the good times of sectors such as tourism, leisure and banking. This take-off defied the omens for the last quarter of the economists and makes it possible to predict that in 2023 the earnings of the large listed companies will be as good as in 2022, when they were already close to their record levels.
In an article published this week in the EY Insights yearbook, the governor of the Bank of Spain, Pablo Hernández de Cos, points, however, to a narrowing of company margins during the last quarter of 2023. In other words, they will have to bill more to earn the same.
For investors, the dividend is a bit like the income that the owner of an apartment gets when he rents it out. It is a return on the margin of capital gains that traders dedicated to buying and selling shares aspire to. Its return, which is measured by the share price and increases if it falls, was 4.6% last year, far outpacing inflation and even the letters of the Treasury, according to the figures offered by BME.
Added to this is the generally good behavior of companies on the stock market, which has partly dispelled the Spanish Government’s fear that foreign investors will launch bids on companies of a strategic nature. The Ibex has rallied 22% in 2023, the biggest progression since 2009, and has crossed the 10,000 point threshold for the first time since February 2020.
And what can we expect for 2024? Given the failed predictions of 2023, the answer should not be taken at face value. JPMorgan says in a report that equities “offer investors the possibility of significant gains in 2024”, while Macquarie Asset Management believes, on the other hand, that there are “headwinds” and volatility risks, although it considers it interesting focus on the European listed companies with a low valuation.