Draghi economy expands, but income return to shareholders lowest in 5 years

European economy saw a rise under Mario Draghi stimulus: profits are increasing, and the market is up. However, the proportion of cash that firms are poised to return to shareholders in 2015 will probably be the lowest in five years, says Bloomberg referring to estimates by Bank of America Merill Lynch.

In 2015, European companies are likely to spend 30 percent of their cash flow on dividends and share buybacks, the least since 2010, with just 1 percent going to repurchases, the bank estimated in a note to clients.

In the U.S., by contrast, almost twice as much cash flow is returned to shareholders. In Europe, chief executive officers are becoming stingier when it comes to equity owners - even after cash balances for Stoxx Europe 600 Index companies reached 2.2 trillion euros ($2.5 trillion), the most since at least 2003.

“Corporates will certainly be waiting to make sure the recovery is real before returning to pre-Lehman ways of shareholder payouts,” the bank's strategists wrote.

Share buybacks are deterred due to high unemployment and low wage growth at a time when "politicians have waded into the debate to suggest that companies should show more restraint in shareholder payouts,” they said.

This year, the eurozone economy is estimated to expand 1.5 percent, the most in four years, and analysts estimate profits at Stoxx 600 firms will grow 5.4 percent. The benchmark gauge has climbed 13 percent this year, says Bloomberg.

At the same time, with the index 7.2 percent lower since its April peak and Germany's DAX losing 11 percent, concerns are growing, as markets still live in the shadow of 2008, thinks David Hussey, head of European equities at Manulife Asset Management in London.

“All you ever hear in company meetings are questions about restructuring, cost cutting, debt levels. Investors are all a bunch of bears. That’s not really stuff that makes CEOs want to spend aggressively,” he says.

Bondholders are those who are benefiting for now. Bank of America forecasts that this quarter will see a record 9 billion euros spent in gross corporate-bond buybacks.

According to the bank's strategists note, a return of the share buyback will give European stocks a very important and very bullish development.

“It may simply be early days in the recovery for corporate behaviour to have materially changed, and 2016 is likely be the year when the shareholder gets revenge.”