In an article published last week we reviewed the broad trends in the dividend income from European equities, highlighting the collapse in dividend expectations during the 2007/09 bear market and the partial recovery over the last 12 months.

But this overall trend hides variations across different areas of the European equity market. In some sectors companies have managed to carry on a steady payout policy, whereas in others dividends have fallen to a fraction of their pre-2007 levels.

Below we subdivide the supersectors of Europe’s benchmark equity index, the Stoxx 600, into three broad categories: the stalwarts (those sectors so far providing a steady income), the cutters (the sectors that have slashed dividends) and the in-betweens.

First, a note on the methodology used in the charts below: we have divided each sector’s rolling 12-month dividend total since December 2005 by the sector price index as of 28 February 2010. This means that the charts do not show the sectors’ dividend yields over time (yield is typically calculated as dividends/price, with price varying). The reason for using this method is that it gives a clear picture of the variation in absolute payouts and an accurate representation of how much an investor can expect to earn if buying into the sector at the current price (assuming no change in dividends paid).

The Stalwarts

There are three Stoxx Europe 600 supersectors that remain the cornerstones of a yield-producing portfolio, both in terms of the absolute amounts paid out as a percentage of current prices, and in terms of the relative steadiness of the dividend stream throughout the last few years. They are oil and gas, telecoms and utilities.

Oil and gas stocks carry particular significance for income-oriented investors. BP and Royal Dutch Shell, which represent a combined 40%  of the Stoxx 600 oil and gas index, are expected to pay out around £15 billion in 2010, a quarter of all dividends of UK companies. Meanwhile Total, whose weighting is 18% of the sector index, had its dividend rated the most secure of the European oil majors by analysts at Royal Bank of Scotland last year.

There have been concerns that BP might cut its dividend after oil retreated from the record price it set in 2008. BP’s pledge to maintain it – announced on 4 March last year – was practically a signal for the equity market bottom. However, rumours of a possible cut haven’t disappeared, as David Stevenson of Money Week recently analysed. BP’s dividend appears to be a key metric not just for income-seeking investors, but for the equity market as a whole.

All in all, the Stoxx 600 oil and gas sector’s stocks pay out an aggregate 4.2% in yield, based on February’s closing index price, a good way above the 3.3% yield on offer from a diversified basket of European blue chips (as measured by the Euro Stoxx 50 index) and around the same as a portfolio of long-dated European government bonds.

Telecoms and utilities stocks are even better payers, at 5.4% and 4.9%, respectively, for the baskets represented by the Stoxx 600 sectors.

The telecoms index has a heavy weighting (26%) in Vodafone, followed by Spain’s Telefonica (23%). Vodafone’s dividend is worth 5.5% per annum at current prices and the stock is a favourite of hedge fund manager David Einhorn, who argues that the firm’s valuation ignores its 45% stake in Verizon. However, George Luckraft, equity income fund manager at AXA Framlington, sees risks to Vodafone’s payout, according to a recent Citywire report, pointing out that the parent company still has no access to Verizon’s cashflow. Telefonica’s 5.7% dividend is another big contributor to the sector’s income stream, although the company’s share price has recently been under pressure, with some analysts questioning whether flat company revenues can be consistent with announced dividend growth targets.

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