“This year’s higher outflow of dividends is due to higher profits of foreign-owned enterprises. They grew by 19.5 percent year-on-year, that is, by 63 billion,” UniCredit Bank analyst Jiří Pour told Práva.
Pour added that the rate of reinvested profits this year, according to the CNB data, which is still likely to be revised, fell from 30 percent to 26 percent, thus approaching the level common in the period between the last financial crisis and the covid pandemic in 2010 to 2019.
Dividend payments usually peak in the third quarter. For the whole of last year, 331 billion went abroad in dividends and interest due to foreign direct investments, and the share of reinvested profits for the whole of 2022 was 35 percent. A year earlier, the parent companies of domestic companies paid out 193 billion, while the share of reinvestments was 45 percent.
The sluggish Czech economy is the only one in the EU that has not reached the level before the pandemic
2019 was a record year so far, with the outflow of capital from Czech companies to foreign parent concerns in the amount of 353 billion. “There is a good chance that the record could be broken this year, but that remains to be seen according to the revisions,” said Pour.
It continues to be true that the Czech Republic is a profitable location for foreign owners
High inflation has a temporary positive effect on the profitability of companies. “In general, companies not only managed to write increased costs into the prices of their production, but they often managed to ride the wave of inflation and thus increase their own profit margins. However, companies will pay the bill for inflation in retrospect due to subdued demand and employee demands for wage growth,” added the analyst.
Only Romania pays out more to investors in the region
“It is still true that the Czech Republic is a profitable location for foreign owners,” Pour summarized.
The annual return on foreign direct investment in 2022 rose by 0.6 percentage points to 9.6 percent in the Czech Republic. “This was less than the average from 2010 to 2019, when it was 10.3 percent, but compared to other countries in the Central and Eastern Europe region, it was the second highest yield after Romania with 10.2 percent,” the analyst pointed out.
The Czech Republic was closely followed by Poland (with a yield of 9.4%) and Lithuania (9.3%). In Austria, the return on foreign direct investment was 6.1 percent, in Slovakia it was six percent, and in Hungary it was 4.5 percent.
“If we take into account the dividend yield of direct foreign investments, i.e. what investors paid abroad after deducting reinvested profits, we get a figure of 6.2 percent for the Czech Republic in 2022, again one of the highest in the region – for comparison with Austria, it is 4.3 percent, Poland 4.1 percent and Slovakia 3.2 percent,” Pour said, referring to Eurostat data.
The record may fall worldwide
Investment firm Janus Henderson estimated at the end of August that companies around the world could pay out a record $1.64 trillion (CZK 37.8 trillion) in dividends this year, when the volume of dividends paid out rose by more than six percent in the second quarter alone .
In the second quarter, 88 percent of companies either increased their dividend or kept it at the same level.
Dividends grew fastest in the quarter in Europe, where a number of countries, such as Italy and Spain, have introduced or are about to introduce an extraordinary tax on the high profits of banks and energy companies. But in Britain, dividend payouts fell as the country’s oil and gas firms saw payouts jump after Russia’s invasion of Ukraine sent commodity prices higher.
The high rise in interest rates around the world meant that banks contributed to half the increase in dividends around the world. In Europe itself, a quarter.
According to Komerční banka analyst Jaromír Gece, among the most important sectors from the point of view of dividend outflow are those in which the most direct foreign investments are directed, which create added value and jobs in our country.
Banks have already withdrawn over 75 billion this year
Purely on dividends, i.e. without interest and other transfers, foreign owners were paid out 298.7 billion crowns from their domestic companies, of which 80.3 billion crowns were in the banking sector. “Furthermore, the largest dividends were paid in the motor vehicle sector, CZK 35.7 billion, and telecommunications activity, CZK 18.3 billion,” CNB spokeswoman Petra Vlčková told Prav.
According to preliminary data from the central bank, roughly 220 billion were paid abroad in the first eight months of this year, of which banks sent their mothers 75.8 billion from their profits. “More detailed data will be available only after the end of the year,” added Vlčková.
Dividends are traditionally a politically sensitive topic. “We will solve the issue of the outflow of dividends abroad with the aim of increasing the attractiveness and investment in the Czech Republic by favoring reinvestments back into the Czech economy,” promises the coalition government of Petr Fiala (ODS) in its updated statement from the beginning of March.