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European dividend futures are stirring from their months-long slumber, reflecting investor expectations that positive COVID-19 vaccine updates on top of trillions of dollars in stimulus will fast-track an anticipated recovery in company profits.

On Wednesday, 2021 dividend futures for European banks jumped 11% after European Central Bank official Yves Mersch said lenders may be allowed to resume payouts next year if they show their balance sheets are strong enough. The contract remains well below 2019 levels.

More broadly, euro STOXX dividend futures contracts for 2023 and beyond have surged around 20% in November on expectations vaccinations could start next month. The derivatives, measuring future dividend payouts, have rallied alongside so-called value stocks, companies which are more sensitive to economic cycles.

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“Financials will hopefully be a key source of dividend growth next year,” Morgan Stanley analysts told clients.

That’s by no means certain -- the EU insurance watchdog said it was too early to lift dividend bans. European regulators recommended the suspension of dividends earlier this year in an attempt to preserve banks’ capital amid rising loan losses and demand for credit.

Futures suggest that even in 2026-2028, euroSTOXX 50 dividends will remain 20% below pre-pandemic levels.

Less gloomy data from IHS Markit still shows euro STOXX and FTSE dividends 15% and 25% below pre-pandemic levels respectively in 2022. U.S. payouts, however, are seen rebounding to pre-pandemic levels by end-2020.

Many analysts point out dividends did take four years to fully recover from the 2008-09 financial crisis.

“I think some of the value rotation moves are a bit overdone,” JPMorgan analyst Nikolaos Panigirtzoglou said, referring to the rush into banks, travel and industrial shares.

“I wouldn’t bet that some of these companies will be able to increase dividends from here. It should take three years or so for dividends to normalise.”

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Globally, dividends could fall $263 billion this year, a Janus Henderson report said this week, while analysts tracked by Refinitiv I/B/E/S predict that payouts by STOXX 600 index constituents may drop nearly $60 billion.

Despite the optimism, dividend recovery will lag earnings, Morgan Stanley said, adding that while “European profitability will surpass 2019 levels by 2022, we think dividends are less likely to achieve this feat”.

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