Despite plenty “of dividend cuts in recent years, the yield on the MSCI pan-European utilities index – which compares the size of the most recent payout with the share price” flirted with 7% in late September, Francesco Canepa reported for Reuters.
The yield spike for European utilities could be indicative of one of two things – the stocks are undervalued or poised for dividend reductions. Some market observers believe it is a case of the latter. Analysts cut their 2013 dividend estimates for European utilities by 1.7 percent over the last 30 days, the steepest cut for any European sector and 50 percent more than second-ranked basic materials, according to Reuters.
Some German utilities have already pared dividends and U.K. power firms are seen as vulnerable to heavy regulation. Spanish utilities are not believed to be prime dividend destinations, either. Those three countries combine for nearly 23% of JXI’s weight.
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