Since roughly two years, we have seen significant growth of interest among Western investors for Eastern European equity markets and for the Polish one in particular. The reasons have been significant lower valuations than on Western stock exchanges, especially NASDAQ, where stock prices have been fuelled by the expansive monetary policy of central banks, and much better possibilities for retail investors to trade equities e.g. on the Warsaw Stock Exchange than only five years ago.
Due to a lack of alternatives and trust in government pension schemes an increasing number of retail investors from Western countries nowadays invests on the stock market on own account and many focus on dividend stocks. However, not many are aware, which great opportunities Eastern European equity markets offer in this regard. In Poland, Czechia, Russia or Romania, listed companies often offer yearly dividend yields close to 10%, which is particularly attractive given current inflation rates in major Western economies. There are various reasons for such high dividends e.g. (1) in many companies, the state is a controlling shareholder and needs the cash to be able to finance investments or social programs (2) pension funds are dependent on regular cash inflow to be able to fulfill their obligations towards retirees, and (3) investment funds often prefer to receive high dividend payouts as they guarantee that cash surpluses of companies are used in the interest of minority shareholders.
For dividend investing in Eastern Europe, we prefer stocks of larger companies with leading market positions, strong track record and sustainable business models. The following table provides an overview of our top picks:
| Company | Description | Market cap | DYield 2021E |
|---|---|---|---|
| PZU | Largest insurance and banking group in CEE and Top 3 provider of private healthcare services in Poland. | EUR 6.7bn | 7.5% |
| Asseco Poland | 6th largest IT company in Europe with c. 80% share of revenues from outside Poland. | EUR 1.6bn | 3.0% |
| Grupa Kety | Manufactures and sells aluminum products to Polish and international clients with an export share in total sales of c. 41.2%. | EUR 1.2bn | 9.8% |
| Moneta Money Bank | Leading Czech bank for retail and SME sector that considers itself a digitisation leader. | EUR 1.9bn | 6.6% |
| Magyar Telecom | Provides fixed-line and mobile telecommunication services for residential and small business customers in Hungary. | EUR 1.1bn | 3.7% |
| OMV Petrom | Is the largest energy company in Southern and Eastern Europe. Produces oil & gas, refines and distributes fuels and generates power. | EUR 5.4bn | 6.4% |
| Mobile Telesystems | Largest provider of fixed-line, mobile telco and pay-TV services in Russia and CIS. | EUR 5.7bn | 10.2% |
| X5 Retail Group | Largest grocery chain in Russia and market leader in the area of e-food. | EUR 6.6bn | 9.6% |
| Magnit | 2nd largest provider in the area of food retail in Russia. | EUR 6.6bn | 9.9% |
* members of East Value Research’ team my hold some of the above mentioned shares