* Europe at highest dividend payout ratio in 5 years
* Market jitters knock crowded dividend trades
* Tough to convince CEOs to return more cash-fund manager
* Ahold, Metro show market preference for capital return
* Some say dividend play can withstand higher yields
By Lionel Laurent and Alistair Smout
LONDON, June 15 (Reuters) - Company earnings are on the risein Europe and shareholders are feeling the benefit, with moreprofits being paid to investors than at any time in at least thelast five years.
And this is not restricted to Europe: companies across theworld are scrimping on capital spending and reinvestment tobetter reward shareholders in an era of low growth, a trend thathas sparked criticism in the United States as companies prop upshare prices with debt-fuelled share buybacks.
But investors' quest to shake yet more cash from Europeanbalance sheets, which are collectively holding some $1 trillion,faces a tough test as jittery financial markets knock crowdedtrades such as reliable blue-chip dividend payers and tempt somecompanies to hoard capital or deploy it elsewhere.
The recent jump in bond yields, for example, has hittraditional safe havens such as utilities - known for reliablepayouts but also for relatively high debt levels. Utilities havebeen the worst-performing sector so far this year in Europe.
And as fears of a Greek default ripple across world markets,adding to a choppy trading environment as central banks takedivergent paths after years of easy money, some fund managersexpect companies to take greater care with their purse-strings.
"When we talk to companies it is pretty difficult toconvince them to give cash back to shareholders," said IngoSpeich, portfolio manager at Union Investment in Frankfurt,citing cash-rich sectors such as automakers.
"Banks are reluctant to give them liquidity and we have apretty volatile market environment, with Greece and the EuropeanCentral Bank (buying bonds) and so on...They want to bedefensive."
BALANCE-SHEET STRENGTH
For now, shareholders are rewarding companies that pay out abigger slice of funds to shareholders than they reinvest,according to research from Citi tracking compound annual growthrate of total returns between 2010 and 2014.
This can cost companies that disappoint market expectationsfor more cash. German retailer Metro's share price hasfallen 6.8 percent since ruling out a special dividend from thesale of its department store chain Kaufhof, opting instead topay down debt and invest in other divisions and new markets.
"If you asked investors whether they'd prefer Metro toreturn this money to shareholders or use the money itself, Ithink a lot of people would rather at least some money had comeback to them," said Barclays analyst James Anstead. "Investorsare sceptical about (spending cash on) growth opportunities."
Sure, some fund managers said they would also avoidcompanies that ramped up payouts too aggressively. Couttsstrategist James Butterfill said that better bets were companieslike Royal Dutch Shell that could invest in explorationand also commit to dividend payouts.
But with market volatility in Europe on the rise, investors'ability to identify and trade on payout plays will be testedeven as dividend payouts hit multi-year highs.
"We see companies paying out more and more of their earningson average," said Daniel Jakubowski, fund manager at Assenagonin Munich, who said while this was not yet a cause for concernthat investors had to look at whether companies had the earningspower to match. "We have to be careful." (Reporting by Lionel Laurent, editing by David Evans)
