- In Germany the dividend season is starting, shareholders will receive a record amount of EUR 47 bn (+9% more than in the previous year)
- The dividend payments are funded by the companies’ operating performance and are thus very solid
- Our “dividend aristocrats” are still the trump card in our opinion
Many shareholders are looking at their account statements with pleasure again these days as the first big DAX group in the guise of Siemens opens the 2018 dividend dance. Around the globe the economy is booming so it comes as no surprise that investors can expect record dividends this year. The big German groups will be paying out around EUR 47 bn to their shareholders, which is over 9% more than in the previous year.
The correction in the equity markets means that dividend yields have increased again to some extent. The DAX offers a dividend yield of 3.2%, which corresponds to the average for the past 15 years and which looks attractive in an environment of rising profits and dividends. Relative to bonds, European shares also offer a significant yield pick-up. But this applies only to Europe. In the USA the interest rate turnaround has already advanced a lot further, and interest rates are significantly higher than in Europe and dividend yields are now back below bond yields again.
German companies are in good shape financially so they are able to pay out above-average dividends. We assume that around 42% of profits will go to shareholders in the form of dividends. This is slightly more than the average for the last few years. But the companies’ profitability has increased significantly in the last few years so despite the high dividend payments the companies are still in a position to make the necessary investments for the future. The dividend payments are funded out of the companies’ operating performance and are thus very solid.
The leading indicators suggest that the economy will remain in good shape so dividends should also increase in the next few years by around 10% a year. As a result, shareholders have good prospects of higher revenues. In a good two years companies could pay out EUR 56 bn worth of dividends.
The top dividend payers this year are – in absolute terms – Daimler and Allianz, which have each paid out around EUR 4 billion, followed by Siemens, Telekom and BASF, with over EUR 3 bn each.
In relative terms, the highest dividend yields in the DAX are offered by RWE at 9.2% (including bonus dividend), ProSieben (6.2%), Daimler (5.2%) and Deutsche Telekom (5.0%).
We recommend defensively-minded investors to continue to back our “dividend aristocrats” i.e. companies which have paid and increased dividends continuously. For investors with a greater risk appetite we recommend shares with an attractive dividend yield and additional upside share price potential.