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Attractive dividends from the two French carmakers

03 October 2018 Jonathan Chatelain

PSA and Renault posted strong 1H18 results and confirmed their 2018 outlook unlike some other European carmakers

  • We expect PSA to boost its FY18 dividend by 50%
  • Renault forecast dividend yield is at a five-year high
  • We project dividends from French carmakers to grow CAGR 12% over next four years vs. 8% for France CAC 40 and 6% for the three German carmakers.

European automobiles stocks have been under pressure over recent months against the backdrop of escalating international trade tensions. While the Stoxx Europe 600 is down 2% Year-To-Date (YTD), its automobiles sector sub-index is dropping 13% YTD. In France, Renault's share price is down 12% YTD, but PSA is up 32%, after a sharp price increase following 1H18 results release.

Despite challenges such as the global trade conflicts, the new emissions regulation known as WLTP, the currency volatility in emerging markets and the pulling-out of the Iranian market due to US sanctions, PSA and Renault confirmed their 2018 outlook at 1H18 amid strong results, while some other European carmakers revised their outlook downwards.

EBIT margin trend: PSA vs. Renault

Post 1H18 results, we have revised our FY18 dividend estimates upwards for PSA. We now expect a dividend of €0.80 per share for FY18 vs. a previous forecast of €0.70 per share. It reflects a dividend increase of 50% and a payout ratio around 25% of earnings per share estimates in line with PSA's dividend policy resumed in FY16. PSA is forecast to deliver the biggest dividend growth among France SBF120 for FY18 but also compared to other European carmakers.

Dividends from French carmakers to grow CAGR 12% over next four years

While we expect a dividend of €3.80 per share, up 7% for Renault, our forecast dividend yield of 5.1% stands at a five-year high compared to 3.5% for PSA. Only Daimler currently trades at a higher dividend yield than Renault (6.7%).

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Posted 03 October 2018 by Jonathan Chatelain, Senior Research Analyst

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