New tax to affect dividend policies

The government’s decision this week to tax share dividends is likely to bring an end to Greek listed firms offering healthy dividend yields on their shares in a move that will also weigh on stock valuations, according to experts. The Finance Ministry announced on Wednesday that dividends will be taxed at a rate of 10 percent from next year as part of efforts to up sagging budget revenues. Annual dividend yields of firms listed on the Athens bourse currently average around 3.3 percent versus 1.5 to 2 percent on other European bourses. This is likely to change as companies seek ways to dodge the new tax. One commonly adopted method is for firms to buy back their own shares and then cancel them, or simply to lower their profits. Other options include offering shareholders a share capital return or dividends in the form of bonus stocks. Regardless of the policy decision made, the new tax makes Greek stocks less attractive to foreign investors, market experts point out. It will probably lead to a drop in share prices of up to 8 percent once it has been fully factored in, said one analyst. Other analysts underlined that the gradual cut in the corporate tax rate to 20 percent from the current 25 percent by 2014 will help offset the negative impact from the dividend tax.