Luxury firms defy difficult markets by boosting dividends

Ordinary dividends across 15 of the largest European luxury stocks are set to grow by 9 per cent by the end of the year, research from IHS Markit revealed.

Companies have been operating in a tough environment recently, but Simon Colvin, research analyst at Markit, said there has been no indication that luxury firms will cut dividend payments.

The data provider even predicted payments will grow by an extra 8 per cent in 2017, despite the luxury sector being the target of short sellers over the past couple of years.

But this largess comes at a cost Simon Colvin

While the pace of dividend growth has halved since 2012, Mr Colvin said the increase in dividends shows firms are willing to ride out the uncertainty in order to sustain payments.

But he warned this “largess” comes at a cost, as the current financial year’s forecasted payouts will comprise 45 per cent of forecasted earnings, up from 37 per cent back in 2010.

Markit research found that French fashion house Louis Vuitton will be the sector’s main growth engine, forecasting an 11.3 per cent payment increase in the current fiscal year.

French firms were found to be leading the way in terms of luxury dividends, with fashion group Kering and jewellery company Hermes International also expected to grow dividends by more than 10 per cent.

Danish jeweller Pandora and Italian apparel firm Moncler were also high up on the list of companies expected to boost payments by more than 10 per cent.

But Mr Colvin said investors looking to wade into the luxury sector’s highest yielding shares should beware, as all four companies forecasted to offer the most attractive yield in the coming 12 months have more than 5 per cent of their shares currently shorted.

These companies include fashion group Hugo Boss, shoe company Tod’s, and Swiss watch firms Swatch and Richemont.

There has been a flurry of warnings about UK dividend payments recently, as many companies have cut, or even cancelled, dividends, while two big name fund managers said some firms are using debt to keep up with payments to shareholders.

Henderson’s Global Dividend Index revealed UK dividends had fallen further behind other developed markets around the world as the value of the pound plummeted.

katherine.denham@ft.com