Dividend cuts weigh down European shares

European shares fell yesterday as surprise dividend cuts by RSA and Lufthansa and weak results from the likes of Accor and BHP Billiton weighed on sentiment.

The FTSEurofirst closed down 3.01 points, or 0.3 per cent, at 1,168.72.

Britain’s biggest business insurer RSA was the biggest individual faller after it unexpectedly cut its dividend by a fifth after weak investment returns, sending its shares down 14.2 per cent.

“There would have been a lot of income funds invested in the stock purely on the basis of its dividend, so they would have been selling out of it today, but once it settles down investors will realise that it was a sensible move,” said Paul Mumford, a fund manager at Cavendish.

The announcement had a knock-on effect within the insurance sector with Aviva down 4.1 per cent as Markit downgraded its dividend forecasts for the company by up to 19 per cent.

“Following the cut from RSA Insurance Group, Markit expects Aviva to take a similar decision ... in order to reach its targets in the 2014 Strategic Plan and considering the macro-economic environment uncertainties,” Markit said in a note. Europe’s biggest airline Lufthansa shed 6.2 per cent after stunning markets by witholding a dividend for the second time in three years.

Telecoms, which have the highest dividend expectations in Europe – analysts forecast a 6.1 per cent yield in the sector over the coming 12 months – fell 1.2 per cent.

Dutch telecom company KPN slipped 9.7 per cent after Mexican business magnate Carlos Slim, the world’s richest man, backed the firm’s plan to raise €4 billion.

Europe miners suffered most, falling 2.8 per cent to their lowest level since early December 2012, weighed down by falling metal prices with traders citing unconfirmed rumours out of the United States of trouble at a large commodity fund.

The sector found technical resistance at its 14-day moving average of 453.46 and there was downbeat earnings news too, further weighing on sentiment, after global miner BHP Billiton , down 2.4 per cent, reported a 43 per cent drop in half-year profit. Falling earnings hit tobacco products maker Swedish Match , down 6.8 per cent, while Europe’s biggest hotelier Accor and Dutch paints and chemicals group AkzoNobel NV shed 3.6 per cent and 5.3 per cent, respectively, after both firms announced cost-cutting plans to offset weak trading.

Upbeat outlooks, however, from the world’s largest cement maker Lafarge and French bank Credit Agricole helped the firms’ shares up 5.5 per cent and 3.9 per cent, respectively.

In the current reporting season, 54 per cent of STOXX Europe 600 firms have posted quarterly results so far, of which only 51 per cent have beaten or met forecasts, in contrast with Wall Street where 79 per cent of S&P 500 companies have reported results, with 77 per cent meeting or beating consensus, Thomson Reuters Starmine data show.

But weak eurozone consumer confidence will do little to help corporates meet earnings expectations and figures, which fell short of analyst forecasts, weighed on French, Italian and Spanish indexes, which shed up to 0.8 per cent.

Britain’s benchmark FTSE 100 touched fresh five-year highs but failed to close above a key technical level, leading some traders to expect a minor, near-term sell-off.

Traders said the fact the index could not hold above the 6,400 point level, seen by many as key to more near-term gains, meant it was more likely that the market would fall in coming sessions.