Swedish Firms Resume Dividends as Covid Shock Milder Than Feared

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Swedish Firms Resume Dividends as Covid Shock Milder Than Feared
Credit: © Reuters.

(Bloomberg) -- Shareholder rewards are resurfacing in Sweden, where businesses now face a much milder recession than first feared.

Appliance-maker Husqvarna AB (ST: HUSQb )said last week it will resume dividends thanks to favorable market conditions and a healthy cash position. Forestry company Holmen AB (ST: HOLMa ) and real estate firms Kungsleden AB (ST: KLED ) and Wallenstam AB (ST: WALLb ) have announced similar plans.

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

“More companies will pay dividends, either this year or double the next,” said Guri, who expects to see payouts across “all sectors” except banks given a recommendation by Sweden’s financial watchdog not to distribute dividends for 2019.

Sweden’s economic outlook has steadily improved in recent months. In August, the government forecast a 4.6% GDP contraction this year, compared with the 7% slump feared back in May. For next year, GDP is seen growing 4.1%, representing a stronger rebound than previously estimated.

The stronger macro numbers were reflected in second quarter results at Sweden’s biggest companies. Of the firms listed on the OMX Stockholm 30 Index, more than two-thirds beat earnings estimates last quarter, according to data compiled by Bloomberg.

“There is scope for substantial dividends or share buybacks in many companies for the financial year of 2020,” Danske Bank senior strategist Mattias Sundling said, adding that “the majority” will likely not distribute for 2019.

‘Cheap Insurance’

Distributing money to shareholders in the middle of a global pandemic remains controversial. Two-thirds of companies on Sweden’s benchmark stock index have either withdrawn, lowered or postponed their dividend decisions for 2019. Of them, Atlas (NYSE: ATCO ) Copco AB, Investor AB and about 10 others say they can still opt to distribute funds, according to their public statements.

From the Archive: Swedish Firms Pay Out Billions to Owners Despite Pleas to Stop

The Stockholm-based Agency for Economic and Regional Growth says it will demand repayment of state support from any firms that pay dividends. In a similar vein, Sweden’s financial watchdog says banks shouldn’t distribute dividends at all this year.

“Suspending dividend payments is a cheap insurance policy,” Erik Thedeen, the Financial Supervisory Authority’s Director General, said earlier this month. “If we experience a sharp decline, the banks will need the capital to boost the economy.”

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

©2020 Bloomberg L.P.

© Bloomberg. A national flag of Sweden hangs from a commercial building in Stockholm, Sweden, on Wednesday, June 28, 2017. Just as Sweden’s biggest mortgage banks start raising interest rates, the country’s state-backed home-loan provider says it’s cutting customers’ borrowing costs in a move that threatens to hurt industry profits after years of negative rates. Photographer: Mikael Sjoberg/Bloomberg

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