* Dividends back in vogue with interest rates seen stayinglow
* Valuations favour high yielders after year-to-date pricelag
* Insurers dominate screen to top-quality dividend payers
By David Brett
LONDON, Oct 30 (Reuters) - Investors are buying Europeanstocks that pay high dividends to make the most of an expecteddelay in the winding down of U.S. monetary stimulus and eventualinterest rate hikes.
The U.S. government shutdown in October, combined with asurprise decision in September by the Federal Reserve not totaper its $85 billion a month of bond purchases with newlycreated cash, has pushed back expectations of interest raterises. That in turn has cooled bond yields, prompting investorsto seek income from dividend-paying stocks in a trend that looksset to last into the new year.
Over the last 30 days, STOXX Europe 600 companies that payout a dividend higher than that on offer from the broader index- currently averaging 3.35 percent of the share price - haveperformed at least in line with peers offering lower payouts,after lagging year-to-date.
Volumes in the high yielders have been twice as great astheir lower yielding peers, according to StarMine data.
The Fed is now expected to signal on Wednesday that it willnot start cutting bond purchases until March.
"Because of the miserable rates offered on deposit and byother asset classes, there is perpetual demand for high-calibreyield, be it your Royal Dutch Shell, GlaxoSmithKline or even something that has underperformed like Unilever coming back into the frame," said Tim Whitehead,strategist at investment firm Redmayne-Bentley.
Investors will need to be quick to cash in on the rally,however, with U.S. budget negotiations set to resume in earlyJanuary and the debt ceiling up for debate again in February andwith jitters likely to beset equity markets in the build up toeach Fed meeting ahead of next year's budget negotiations.
"For now the further stimulus wins," Steen Jakobsen, chiefinvestment officer at Saxo Bank, said. "This makes Q4 apotentially very strong quarter, even possibly a repeat of 1999,where sub-par performance forced mutual funds and hedge fundsinto massive momentum buying into year-end."
NORDIC BANKS, INSURERS
After underperforming on price for much of 2013,higher-yielding equities now look attractive on profitexpectations over the next 12 months, trading on an averageprice-to-earnings (P/E) multiple of 13.6, 20 percent cheaperthan their peers, StarMine data showed.
StarMine's Value Momentum (Val-Mo) model, which analysesprice momentum and analyst revisions to identify stocks thatappear unjustly cheap, also suggests higher yielders are bettervalue than the lower yielders, with an average score of 61 outof 100 compared with 43.
Screening the higher yielding stocks for the best qualityplays that feature in the top 10 percent on StarMine's Val-Momodel, insurers such as Aegon and Allianz make up 40 percent of the basket of 25 companies. Nordic banks,including Nordea and Swedbank, also featureprominently.
In P/E terms, all the stocks in the basket look cheaprelative to the broad market, which suggests there is still roomfor prices to rise should companies meet or beat analysts'current forecasts.
"Whether you look at safe yield such as Nestle orhigh yield, unless we see a very sharp (rise) ... in bondyields, the (dividend) yield story is always going to be nearfront and centre," said Stewart Richardson, chief investmentofficer at RMG Wealth Management.
