Stocktake

Dividends shoot up on Spanish woes: LAST WEEK’S European bond market turbulence saw Spain’s Ibex 35 suffer a double-digit fall…

Dividends shoot up on Spanish woes:LAST WEEK'S European bond market turbulence saw Spain's Ibex 35 suffer a double-digit fall in just over two days, sending it to its lowest level since 2003.

Heavy falls mean Spanish dividends are now sky-high – Santander, for instance, yields over 11 per cent. Until recently, so did telecom giant Telefónica. On Wednesday, it scrapped its 2012 dividend. Other European firms are expected to follow suit.

The Euro Stoxx 50 yields 5.3 per cent, more than double the SP 500’s 2.6 per cent. European companies pay out 42 per cent of earnings to shareholders, compared to 33 per cent in the US. Dividend futures reveal investors expect the gap to be bridged. However – where US payouts are predicted to grow by 10 per cent over the next four years, European dividends are priced for a 15 per cent contraction.

Silly short-selling ban a sign of jitters

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YOU KNOW things are getting hairy when regulators trot out short-selling bans, as they did in Spain and Italy last week.

Such bans don’t work. Analysts at US outfit Brockhouse Cooper noted last week that markets in Australia, Greece, Japan, South Korea and Spain all fell by between 20 per cent and 50 per cent in the last quarter of 2008, despite shorting bans. Markets in Ireland, France, Germany and the US also tanked, despite similar bans.

Besides, data show short- sellers have not been targeting Spanish or Italian bank stocks. Still, at least regulators and politicians get to be seen to be doing something.

Elan share drop on poor drug results

ELAN SHARES suffered their biggest fall in two years last week after Alzheimer’s drug bapineuzumab failed the first of four phase III trials.

Despite market reaction, the results, which examined the drug’s effect on carriers of the ApoE4 gene, were no surprise. Phase II results in 2008 indicated some effect on non-carriers of the gene, but none on ApoE4 carriers.

“I don’t think it at all lets us predict what will happen with the ApoE4-negative group,” said Harvard neurology professor Rudy Tanzi, who was not involved with the trials. “We still need to wait.” All the data will be in by September. However, bapineuzumab remains a long shot – analysts at Morningstar and Sanford Bernstein both estimate the odds of success to be just 20 per cent.

Apple earnings take a tumble

APPLE SHARES tumbled last week after reporting disappointing earnings and guidance. The company sold 26 million iPhones when analysts were expecting 29 million, and projected third-quarter revenue of $34 billion against expectations of $38 billion.

Over the previous eight quarters, Apple had beaten earnings expectations by an average of 17 per cent.

Bulls, however, argue global consumers are just waiting for the next iPhone, rumoured to be coming in October. A similar slowdown was seen prior to the iPhone 4S release last October, shares falling after the company delivered its first earnings miss since 2003.

Buying on weakness and owning Apple ahead of iPhone product cycles pays off, a Merrill Lynch note said last week. Shares increased by 30 per cent on average in the three months leading up to prior iPhone announcements, it said.

One in five CFOs admit manipulation

ONE-FIFTH of US companies may be manipulating earnings, according to a new study. The study, based on a survey of 169 "remarkably forthcoming" CFOs of public companies and 12 CFO interviews, found that such firms typically "manage" their earnings-per-share number by 10 per cent. Unsurprisingly, "few" CFOs support fair value accounting. The paper can be read at iti.ms/PD7LXs

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column