Why Russia might appeal for dividend hunters

Every news consumer in the western world can now be an expert on the Ukrainian front. The daily Russian order of battle, unit names, logistical issues, whether the ground is frozen deeply enough for heavy armour — it is all there online for the amateur analyst. We even know Russian strategic and tactical intentions thanks to psychologists and Washington think-tank experts.

But what if there is no war? For investors with a high-risk appetite that are willing to overlook geopolitical tensions and concerns over the way Moscow governs, the research might be better deployed on deep-value Russian equities.

One outcome of the Kremlin’s economic and social control over its big companies is high dividend payouts. Since 2016, it has been Russian state policy to force key companies to pay out at least half of their profits in dividends.

This has proved helpful in raising the cash to meet pension and military-industrial development costs. For investors, that means there are quite a few deep-value Russian equities with high dividend yield. According to Renaissance Capital, the consensus forecast for the dividend yield on MSCI Russia Index companies over the next 12 months is currently at 11 per cent. That is the largest such estimated yield among all countries in the MSCI Emerging Markets Index.

This may be counterintuitive to those who formed their understanding of Russian asset management based on the 1990s model of crime bosses turned goon-enabled oligarchs. Or on the longer history of Russian corporate misgovernance. Note the old Russian proverbs: “Blat (corruption) is stronger than Stalin” or “In the west they make money from profits. In Russia we make money from costs.”

President Vladimir Putin knows more of those jokes than you do. From the Kremlin’s perspective, every dollar a corporate insider siphons from company cash flow into property on the Côte d’Azur is a dollar lost. And, while Moscow does not care what some non-government organisation…