Push for higher dividends may hit pension funds

EUROPE - Corporate pension funds may be at risk as fund managers urge corporates to increase shareholder payouts, a survey by investment bank Merrill Lynch has found.

This month's global fund manager survey, in which 223 fund managers participated from January 5 until January 11, found that 53% of investors want corporates to prioritise their cash flow to return cash to shareholders via buybacks, dividends or cash acquisition.

"The majority of investors believe that shareholders payouts should take priority over capital spending, repaying debt, or topping up pension fund and addressing pension fund liabilities," said David Bowers, independent consultant to Merrill Lynch.

He argued that the trend is sustainable for now, and "it can go on for quite a long time before organic growth is jeopardised, as people don't stop capital spend," though adding "I think there will be a time that people think ‘you know what, I wish I had done something different with that cash flow'."

Even though the trend of fund managers urging companies to boost distribution is not new, according to Bowers, it is at an "all time high" and "it is hard to see what will derail this view other than a sharp reminder that corporate cash flow is cyclical".

Nonetheless, "there is a significant minority of fund managers" that believes under investing in your own company is not a good development, he added.

Also the survey found that a net of 57% of the respondents believe that companies are under-leveraged.

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