ethere are the beautiful, the strong and the constant. But for everyone: dividends are becoming increasingly important for private provision – worldwide. The investment company Fidelity has just calculated that working Americans with their tax-subsidized 401K savings plan have built up an average of $ 328,200 (around 300,000 euros) in assets after ten years. No less than 233,000 employees have become millionaires through private provision with stocks or equity funds.
The importance of dividends for financial independence is now also impressively supported by figures determined by the British fund company Janus Henderson. According to this, companies already distributed $ 1.425 trillion (roughly 1.3 trillion euros) in cash to their shareholders worldwide in 2019. It was the fourth record distribution in a row. In Germany, companies brought a little over 40 billion euros to the people in 2019. In mathematical terms, that’s almost 1000 euros per household.
Shareholdings in Germany are now fairly unevenly distributed. Only ten million Germans own shares in companies, according to a survey by the German Stock Institute (DAI). Investors who have been around for a while have had an important experience: dividends are far more stable than the sometimes fluttering stock market prices.
“Dividends are an important building block in wealth accumulation”
Solid dividend payers are therefore the egg of Columbus for careful savers. The reliable, regular influx of money reconciles the psyche with the price fluctuations that can cause stress or anxiety for many savers. Janus Henderson’s experts have also identified which companies have contributed most to calming the nerves and financial freedom of hundreds of thousands of people worldwide.
“The growing global economy and low interest rates have driven corporate profits upwards over the past ten years, while the returns on defensive investments have come under pressure,” says Daniela Brogt, Germany’s chief executive at Janus Henderson, also with regard to the monetary policy of the central banks. Dividends have become an important alternative for earnings-oriented investors. “They form an important building block in wealth accumulation.”
The list of the largest dividend payers on earth is traditionally led by oil producers and telecom giants. It is the same here and now. In terms of dividends, no company has passed on as much profit to its shareholders as the British-Dutch energy group Royal Dutch Shell. In the past twelve months, it was $ 15.2 billion. Janus Henderson has converted all figures into dollars for better comparability.
Royal Dutch Shell is not only a firm fixture in the dividend sky in terms of volume, but also in terms of reliability. The company, whose origins go back to 1907, has been one of the largest distributors for many years. The return is also impressive. Those who have no problem investing in a company that still largely makes money from fossil fuels can currently hope for a dividend yield of 7.6 percent.
The world’s 20 largest payers include no fewer than five oil and gas producers. The price development of the energy sector on the stock exchange has left much to be desired in recent years, but the dividends flowed freely and that will not change anytime soon. Because an economy in which electric cars or fuel cell vehicles have made gasoline, diesel and other fuels completely superfluous still lies in the distant future.
“The oil stocks are still capable of high-volume distributions, because oil will have immense economic significance for decades to come,” says Christian W. Röhl, investor and author of the book “Stay cool and collect dividends”.
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However, Röhl assumes that even if the oil price is only stagnating, energy companies’ prices may tend to fall: Institutional investors could throw their positions on the market “to demonstrate that they are investing sustainably,” he says. That would then put the valuations on the stock market under pressure.
There could be no talk of falling prices for two other global dividend heavyweights: Microsoft and Apple. Both values are much higher on Wall Street today than they were a year ago. At Microsoft, the plus has been three quarters since the beginning of 2019, Apple has even doubled. High price increases were accompanied by higher dividends for both. The two technology giants from the United States have aggressively increased their profit sharing for shareholders in recent years and are now among the largest payers in the world with $ 14.5 and $ 13.9 billion in dividends.
“Apple will probably pass Royal Dutch at some point,” says Röhl. Other experts believe that technology stocks will massively catch up in the race for the highest dividend. In addition to Microsoft and Apple, semiconductor specialists such as Intel or Texas Instruments deserve attention. Asian chip maker Taiwan Semiconductor is already among the top 20 dividend payers in the world. The US network specialist Cisco is in 36th place with $ 6 billion.
For local savers, the experts’ evaluation also brings a downer. Of all the major dividend payers in Europe, the Germans had the lowest growth rates recently. After all, Janus Henderson identifies six German companies among 100 of the largest dividend payers in the world, the insurer Allianz will make it to position 52 in 2019, followed by Daimler (position 62), Telekom (position 66), Siemens (position 68), BASF (position 80 ) and Bayer (rank 98).
While the technology group Siemens was able to increase its dividend again this year to EUR 3.90 per share, the car maker Daimler has announced that it will radically cut the dividend, from EUR 3.25 to EUR 0.90. “The total dividend does not say anything about the quality, as can be seen very well from the example of Daimler: In 2018 the largest payer on the German stock market, since then two cuts and now somewhere in the middle,” complains Röhl. Not to mention the bleak price development.
A historic figure also shows what power reliable dividends have: In the past decade, investors worldwide received dividends of $ 11.4 trillion. Between 2009 and 2019, the volume of the warm rain of money almost doubled. All in all, dividends rose by seven percent a year, across all the ups and downs of the global economy.
For the new year, the augurs expect Janus Henderson to develop slightly below average. While the dividends of the Dax companies will probably decrease as a result of the industrial crisis, the dividends worldwide are still expected to increase by four percent to almost $ 1.5 trillion. “Our long-term study shows that it is still worth investing in stocks, but also that global diversification is an advantage,” says Daniela Brogt.
The earnings and thus the dividend growth of the companies had slowed. Globally, however, the economy and corporate profits are expected to expand further this year. “Accordingly, the dividends should be able to increase again. There are many indications that the distributions in 2020 will reach a record level for the fifth year in a row. “
All data confirm how essential it is as an investor not to stick too much to the home market. “If you search, you will find companies with dividend quality in every country,” emphasizes Röhl, who also moderates the program “Echtgeld.TV” and campaigns for the culture of investors in Germany. Dividend quality is defined by continuity, a moderate but not too low payout ratio, return and growth: “If all of this is true, it is a reflection of the quality of the company.”
If you place these criteria like a matrix over the international stock market, you will inevitably come across investments in Switzerland. The Confederation appears to be a small economy in itself. The dividend total of Swiss companies at just under $ 40 billion is almost as large as that of Germany at $ 43.8 billion.
In Switzerland in particular, it is worth taking a look at the second row. “Many German investors are too focused on the Nestlé, Novartis, Roche dividend trinity,” says Röhl. High-growth quality stocks such as Partners Group, Straumann, Sonova – some of which are world market leaders in their niche – were not sufficiently recognized. “These stocks are expensive, but with good reason.”
Asia and the emerging markets are also notoriously underrepresented in German securities accounts, although distributions of considerable magnitude can be found there. Even experienced investors prefer index funds, also called ETFs, for their investments in this region. For example, the SPDR Pan Asia Dividend Aristocrats ETF (WKN: A1T8GC) and the Invesco EM High Dividend Low Vola ETF (WKN: A2AHZU) have a good reputation.
In a separate study, the German fund company DWS worked out the long-term significance of the distributions for the accumulation of assets. Since 1871, dividends in the US stock market alone have brought investors an impressive 4.5 percent increase in value each year. Price gains came on top of that. These 4.5 percent alone seem almost utopian in the zero interest era, and yet they are historical reality. In the future, distributions for private provision and wealth accumulation will become even more important.
