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defensive dividend stocks to take advantage of the improving cyclical backdrop and rising bond yields. That meant our November screen included a high proportion of Financials. This somewhat remains the case but we note the addition of several industrial companies in our latest screen. As a reminder, to qualify the stock must be SXXP listed stocks with at least €2bn market cap, 4% DY, 1.2x DPS cover, 0% DPS 2YR CAGR and qualifying stocks must be on a Buy rating from our fundamental analysts. The yield on the basket is 5% with an average DPS CAGR of 7% and 1.8x covered.

Table 3: European Yield Screen – December 2016
Sedol BofAML ticker Company name Sector Divi Yield (>4%) DPS 2Y CAGR Div'd Cover
426330 DNBHF DNB ASA Banks 4.2 23.9 2.0
B545MG XERSF SWISS RE AG Insurance 5.4 5.2 2.1
457481 MDIBF MEDIOBANCA SPA Banks 4.9 8.0 2.4
B1LB9P SZCRF SCOR SE Insurance 5.3 4.3 1.9
BZ5739 ING ING GROEP N.V. Banks 5.3 4.6 1.7
538003 NRDEF NORDEA BANK AB Banks 6.6 2.1 1.3
BDVZYZ ROYMF ROYAL MAIL PLC Industrial Goods & Services 5.0 4.2 1.8
458882 DNSKF DANSKE BANK A/S Banks 4.4 5.5 2.0
596651 SCGLF SOCIETE GENERALE Banks 5.6 0.6 2.0
021623 AIVAF AVIVA Insurance 5.1 9.9 1.8
B23K0M CTAGF CAPITA PLC Industrial Goods & Services 5.7 2.5 2.1
522603 SAXPF SAMPO PLC Insurance 5.4 4.6 1.2
481334 SVKEF SKAND ENSKILDA BKN Banks 5.8 3.7 1.4
B17BBQ IVTJF INVESTEC Financial Services 4.4 10.0 1.9
528983 EBKOF ERSTE GROUP BK AG Banks 3.6 12.5 3.1
766716 ATASF ATLANTIA SPA Industrial Goods & Services 4.9 11.2 1.3
B83VD9 MNGPF MAN GROUP PLC Financial Services 5.8 15.1 1.2
B5ZQ9D EVKIF EVONIK INDUSTRIES Chemicals 4.4 2.9 1.7
B01FLG GFSZF G4S Industrial Goods & Services 3.9 5.6 1.6
BGLP8L IMIAF IMI Industrial Goods & Services 4.0 4.0 1.5

Source: BofA Merrill Lynch Global Research, Factset. The European Quality Yield Screen identified as a screen above is intended to be an indicative metric only and may not be used for reference purposes or as a measure of performance for any financial instrument or contract, or otherwise relied upon by third parties for any other purpose, without the prior written consent of BofA Merrill Lynch Global Research. This screen was not created to act as a benchmark.

Long SX5E 2018 Index dividend futures
With our second dividend related trade, we remain long SX5E 2018 index dividend futures (DEDZ8), a trade where we continue to see value even with the future price trading close to the high for the year. The 2018 contract implies a 4% decline in dividends paid from the 2016 level. In the absence of a recession, we think that is too pessimistic – 2013 was the last year to see a material 2-year decline in dividends (in the wake of the sovereign crisis and recession). The 2018 contract also still trades at a discount to the level implied by our stock analysts’ DPS forecasts. Our derivative strategists using BofAML forecasts for 2018 estimate 8% upside from current prices. Although the upside is now more limited the risk around this trade is also much lower now. The pull to par effect will become the dominant driver over the coming months and the full year results should provide clarity on where the 2018 contract will settle.

18 Global Cross Asset Strategy – Year Ahead | 30 November 2016
Bank of America Merrill Lynch
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