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Dividend rises underpinning Euro equities

The dividend yield on European equities has increased by 75 per cent over the past five years, boosting investor returns.

The yield on the FTSE Eurotop 300 has grown from 1.61 per cent in 2000 to 2.8 per cent at the end of last year, less than 50 basis points below yield from the FTSE 100.

Morley strategist Ger-ard Lane says this is providing downside protec- tion for investors in Euro- pean equities and is one of the factors behind Eur-ope’s outperformance of the UK all companies sector over the past three years.

Over the three years to May 9, the average Eur-ope excluding UK portfolio has achieved growth of 8.3 per cent before charges compared with a return of 6.2 per cent from the average UK all companies mandate.

Lane concedes that the reasons behind the dividend increase are not all positive, for example, the inverse relationship between share price and dividend yield, but companies are also embracing share buybacks as a tax- efficient means of returning capital to shareholders. He estimates that this alone is adding 1 per cent to equity returns from the Continent.

He is also confident that the benefits of recent corporate restructuring across Europe are now coming through.

Lane says: “We have seen a lot of balance sheet repair and profit growth and companies have got a lot more cash than investment opportunities so they are returning some of this cash to investors.”


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No holds barred

Last week, I looked at how business and agricultural property can qualify for holdover relief if gifted with inherent gains. The other perhaps more relevant way to secure holdover relief is in respect of any gift of an asset into a discretionary trust. This is because the transfer will be a chargeable transfer for inheritance tax purposes.


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