Dividend swap contracts on the Euro STOXX 50 (Zurich: ^STOXX50E - news) index price in an overly bearish scenario for euro zone corporate payouts and can be a cheaper way to obtain yield than credit, according to BNP Paribas (Milan: BNP.MI - news) .
Dividend swaps allow the holder to bet on the dividend paid by the underlying security.
The December 15 contract trades at around 98.8 index points, a 26 percent discount to its fair value of 117 points, according to BNP (Paris: FR0000131104 - news) 's estimates about the dividend that will be paid by euro zone blue chips in 2015, and a yield to maturity of 6.3 percent.
This represents a 582 basis points spread over the euro swap rate, more attractive than the 348 bps spread European credit benchmark Itraxx Crossover index.
"The reason for such an opportunity is simply because dividend swaps remain under the radar of most credit investors (at least for now)," BNP analysts say in a note.
"As their popularity increases, we expect the spread between Itraxx Cross-over spread and 'Divswap Spread' to decrease."
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