(Bloomberg) -- Energy producers in emerging markets are cutting dividend payments faster than peers in developed countries after a slump in crude prices and slackening demand in China forces them to preserve capital.
While the average projected payout per share from energy firms in the developing world is 74% higher than those in advanced economies, the premium narrowed to an eight-year low this month, according to data compiled by Bloomberg. Estimated dividends from emerging energy companies have fallen more than 12% since the end of last year, the data show.
“It is a sign of balance-sheet stress,” said Michael Wang, a strategist at hedge fund Amiya Capital in London, who favors health-care and consumer-staple stocks. “Emerging-market companies are cutting dividends to defend their balance sheets. Cutting dividends could be a bullish signal in that companies are taking steps to shore up their capital base, but I need to have more conviction that oil prices have bottomed before buying.”
Energy producers are taking steps to adjust to a drop in revenue after oil prices, which have posted declines in the last three years, slid 28% in the past 12 months. While Brent crude has recovered 9% this year to $40.73 a barrel on Thursday, Goldman Sachs predicted in a March 7 report that crude will fluctuate between $20 and $40 a barrel over the next year.
Oil prices have been depressed amid a glut in supply that’s worsened as growth in China, the biggest emerging market, slowed and amid projections of higher crude production in Iran. The dividend-per-share estimate is based on a projection for the current fiscal year of each company in the MSCI indexes.