Swedish companies resume dividends as Covid shocks more gently than Bloomberg fears

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© Bloomberg. A national flag of Sweden hangs from a commercial building in Stockholm, Sweden, Wednesday, June 28, 2017. As Sweden’s largest mortgage banks begin to raise interest rates, the mortgage lender backed by the State says it is cutting customer borrowing costs in a move that threatens to hurt industry profits after years of negative rates. Photographer: Mikael Sjoberg / Bloomberg

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(Bloomberg) – Shareholder rewards are resurfacing in Sweden, where companies are now facing a much more moderate recession than feared.

Home appliance maker Husqvarna AB (ST 🙂 said last week it would pick up dividends thanks to favorable market conditions and a healthy cash position. The forestry company Holmen AB (ST 🙂 and the real estate companies Kungsleden AB (ST 🙂 and Wallenstam AB (ST 🙂 has announced similar plans.

And there’s more to come, according to Martin Guri, head of Nordic strategy at Kepler Cheuvreux.

“More and more companies will pay dividends, either this year or double the next,” said Guri, who expects to see payments in “all sectors” except the banks which have recommended by the Swedish financial supervisor not to distribute dividends for 2019.

Sweden’s economic outlook has improved steadily in recent months. In August, the government forecast a contraction in GDP of 4.6% this year, compared to the feared 7% drop in May. For next year, GDP is expected to grow by 4.1%, which represents a stronger-than-expected rebound.

The stronger macroeconomic figures were reflected in the second quarter results of the largest Swedish companies. Among the companies listed in the index, more than two-thirds beat earnings estimates for the last quarter, according to data compiled by Bloomberg.

“There are opportunities for substantial dividends or share buybacks at many companies for fiscal 2020,” Danske Bank senior strategist Mattias Sundling said, adding that “the majority” are unlikely to distribute for 2019.

“Cheap insurance”

Distributing money to shareholders amid a global pandemic remains controversial. Two-thirds of the companies in the Swedish benchmark stock index have either withdrawn, lowered or postponed their dividend decisions for 2019. Among them, Atlas (NYSE 🙂 Copco AB, Investor AB and about 10 others say they can still choose to distribute funds, according to their public statements.

According to records: Swedish companies pay owners billions despite calls to stop

The Stockholm-based Agency for Economic and Regional Growth has said it will demand repayment of state support from any company that pays dividends. Similarly, the Swedish financial watchdog says banks are unlikely to pay dividends at all this year.

“The suspension of dividend payments is a cheap insurance policy,” Erik Thedeen, chief executive of the Financial Supervisory Authority, said earlier this month. “If we take a big drop, the banks will need capital to stimulate the economy.”

Sundling of Danske Bank nonetheless sees a “50% chance that banks will pay dividends this year,” he said.

© 2020 Bloomberg L.P.

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