Although it has not been confirmed yet, the anticipated recession is not only impacting the markets: companies are already cutting their earnings predictions. Power companies are no exception. Their dividends will be significantly lower for the rest of the fiscal year.
The global economic slowdown has had a logical impact on industrial power consumption. This is not turning out to be an especially easy year for the utilities sector, even though they have taken a defensive position.
The year began with nuclear disaster in Fukushima, which resulted from an earthquake and follow-up tsunami that hit Japan on March 11. Further, in the wake of the disaster in Japan, German chancellor Angela Merkel mandated that Germany abandon nuclear power completely by 2022. Since industrial activity has slowed, power companies will be affected one of the sectors hit the hardest by the double-dip recession. So, if the markets are already discounted because of fear of a new recession, power companies are also starting to discount their dividends charged to 2014 in relation to the following year.
Power companies in Germany, Japan and the United States will be affected the most by this situation. The German firm RWE will get the worst end of the stick. Its dividends estimation for 2013 fell more than 10% compared to what it hoped to pay out based on 2012 profits. This is a clear sell indicator, and the company's stock market price has been corrected by more than 50%. Japanese and American power companies are looking at stagnant dividends for the next year. And Japan has taken on more obligations, given that the country's restructuring after the natural disasters and nuclear accident in March is bringing back the recession conditions that they lived through ten years ago.
