As inflation eats away at the purchasing power of European workers, Europe’s biggest companies have dramatically increased the amounts they have paid out to shareholders in the second quarter of 2022.
The Global Dividend Index released by investment firm Janus Henderson Investors shows a sharp rise in dividends paid by the 1,200 largest companies by market capitalization. European companies, in particular, paid out more money to their shareholders than last year, increasing the payout by 28.7% in euros.
According to the report, the rise is made possible by the profits of large companies made last year as the economy recovered from the pandemic. Dividend distributions had already increased by 25.7% in 2021 after being reduced by 28.4% during the pandemic year of 2020.
Driven by recovery and high prices
In France, for example, Airbus has largely contributed to this increase in dividends by resuming its dividend distributions after a two-year break. In other European countries, such as the Netherlands, Belgium, Spain, Italy and Sweden, the increase in dividends was mainly driven by the banking sector.
However, the report also indicates that companies have benefited from higher prices.
For example, German automakers Mercedes-Benz and BMW more than tripled their payouts from a year ago. “Dramatically higher car prices and an improvement in the sales mix toward higher-margin vehicles more than offset volume declines,” the report said.
The index only looks at the largest companies in Europe and the world and therefore offers only an incomplete summary of the situation. Nonetheless, it drives the debate over who benefits and who suffers from the current price hike.
Real wages are falling
Driven by high energy prices following Russia’s invasion of Ukraine, year-on-year inflation reached 8.9% in July in the EU on average. While nominal wages across the bloc have also started to rise, their growth is not offsetting the loss in purchasing power caused by inflation.
Real wages are falling, while dividend payments are rising faster than inflation. Dividend payouts were 15.5% higher in the second quarter of this year compared to the same quarter of the pre-pandemic year of 2019.
This does not please union representatives who believe that the burden of inflation is borne unequally by workers. For the European Trade Union Confederation (ETUC), the gap between dividend growth and wage growth shows that “excessive corporate profits – not wages – are driving inflation”.
Tax extra profits?
“These numbers will be hard to believe for millions of workers struggling with the cost of living crisis,” said ETUC Deputy General Secretary Esther Lynch, calling for a tax on excess profits made from high prices .
The so-called exceptional tax is being discussed in several EU member states, mainly for energy companies. In July, Spain announced that it would introduce a windfall tax on excess profits, aimed at raising additional tax revenue of €7 billion.
Also in July, European Commission Vice-President Věra Jourová said the EU executive was considering a “coordinated and sensible approach in the EU to windfall taxes” during a debate on the subject at the European Parliament.
Meanwhile, critics of the windfall tax argue that high profits are a good incentive for companies to invest, which should then lead to additional supply and lower prices.
[Edited by Zoran Radosavljevic]