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Payout time in Europe as dividends soar

Shareholder payouts by large companies in Europe soared over the last financial year, according to new research from Markit, reflecting a brighter economic backdrop.

Regular dividends from large-cap European companies, led by the banking sector, rose 10.3 percent to 187.3 billion euros ($203.1 billion) in fiscal 2014 from a year earlier. That was the highest growth since 2010, the data provider's research found.

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"The increase in regular dividend payouts since 2010 shows that companies are gradually shifting back towards their pre-crisis dividend policies, and have a growing confidence to return cash as they report higher earnings," said Thomas Matheson, an analyst at Markit.

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It said that banks' dividends soared 32 percent to 30.2 billion euros. Spanish bank Santander paid out the biggest dividend last year, worth 7.7 billion euros, followed by food and drinks firm Nestle, with 6.6 billion euros, and pharmaceutical giant Novartis, with 5.8 billion euros.

Dividends growth outstripped earnings, Markit said, with more than half of large European firms increasing payout ratios – the percentage of earnings paid out to shareholders - while just a quarter reduced them.

The average payout ratio in Europe last year was 53 percent, up from 44 percent reported in 2010.

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"We're pretty optimistic on the outlook for corporate earnings and expect that to seep through into dividend payments," said Robert Parkes, director of equity strategy at HSBC in London.

"It's primarily to do with the improving economic backdrop we're seeing in Europe," he added. "We also don't believe that payout ratios are particularly high at this point either, so there is a potential for dividend payments to rise further."

European stock markets have had a strong start to the year, helped by massive monetary stimulus from the European Central Bank, a weak euro and lower oil prices which have provided a tailwind for many consumers and businesses.

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The pan-European Euro Stoxx 600 index is up almost 17 percent since the start of the year. That beats a gain of just 0.1 percent on the S&P 500 and a rise of about 11 percent in Japan's benchmark Nikkei 225 stock index.

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