Dividend stocks

Find high-dividend stocks for your investment!

Dividends Shares are particularly attractive to investors in times of low interest rates. However, it is not just the return that counts, but also sustainability and stability. It is therefore important to compare the characteristics of successful stocks with one another, be they stocks from Germany, Europe or the USA. In this article, you will find out which characteristics make stocks with high dividends and which stocks have generated the best returns in the past. We also explain what is to be understood by a dividend aristocrat and what profit opportunities such an investment offers you.

  • Dividends are part of the net profit that stock corporations pay out to shareholders.
  • Dividend stocks are becoming increasingly popular with investors.
  • Investors should look to large corporations when choosing stocks.
  • Dividend aristocrats are sought-after investments with very good returns.

High payout ratio in 2018

In 2018 there was a record payout of 52.6 billion euros due to the company’s well-running business (source: German Protection Association for Securities Ownership). Compared to 2017, this is an increase of around 12 percent. The German share index (DAX) alone recorded a total of around 36 billion euros. Businesses for the companies will continue to do well in 2019, which could mean new payout records for investors. Around 80 percent of profits in Europe were distributed as dividends by listed companies in 2018.

Among the standard stocks, dividend stocks are particularly interesting, the payouts of which are permanently stable or which are rising steadily. One ETF specializes in European dividend stocks, the iShares Euro Stoxx Select Dividend 30 UCITS ETF. This shows the 30 stocks with the highest dividend yields from the euro zone.

Is it worth betting on dividends?

If you compare the DAX performance index (DAX), which every investor should know, with the lesser known K-DAX (DAX price index), it becomes clear that dividends make a big difference in long-term wealth creation . When a performance index is calculated, not only the price development of the stocks contained in the index is taken into account, but also dividends. A direct comparison of the two indices therefore clearly shows the proportion of dividends in the return. Towards the end of 2018, the value of the K-DAX was around 5,200 points, while the DAX performance index was around 11,400 points. So investors who reinvested dividends have more than doubled their earnings over the past 30 years. Because both the DAX Performance Index and the K-DAX started in 1987 with 1,000 points. With an appropriate dividend strategy in which the investor looks for high returns, this effect can be increased, which makes a big difference in the long term.

Focus on large corporations

Dividend stocks

The best dividend stocks are stocks of big companies, who have a solid cash flow, predictable profits and a stable business model So that a large part of the surplus can be distributed to investors on a regular basis . So it is important that the default values are stable, such as consumer staple manufacturers, utilities and telecommunications companies, but also companies from sectors such as energy, industry and finance. Often times, high dividend stocks are also more resilient than growth stocks because returns are more predictable. In contrast, growth is mostly more moderate.

The strongest dividend stocks worldwide: example «Royal Dutch Shell»
One of the most sought-after dividend stocks worldwide is Royal Dutch Shell, one of the world’s largest energy companies in the natural gas and mineral oil sector. The company is one of the world’s largest distributors of lubricants and fuels and is involved in production and exploration projects in over 70 countries.

Since 1945 only dividend increases
The large corporation is very well positioned on the balance sheet. In the third quarter of 2018, equity was around $ 201.5 billion. Europe’s largest oil company has not cut its dividend for more than 70 years . Therefore, the shareholders of the energy giant should not have to worry about their dividends in the future either.

Two different classes of shares
The company’s shares are in the split classes A and B . These are equivalent shares, which fully correspond in scope and type to shareholder rights such as dividend entitlement and voting rights. The only difference is the tax treatment of dividends. The A shares are subject to Dutch tax law and thus a withholding tax of 15 percent on the dividend payment. The B shares are subject to UK tax law, so there is no withholding tax deduction on the dividend.

Stock for conservative investors
Swiss Re shares are particularly suitable for conservative investors who want to benefit from the comparatively high profitability of the large reinsurance company. The profit can fluctuate in individual years due to natural disasters. Thanks to the high profitability of the group and the capital cushion, the industry-specific risks are well cushioned. The share is therefore particularly interesting for investors who want to rely on a consistently high dividend yield. In the case of reinsurance stocks, however, the potential for stock price increases is moderate compared to stocks in other sectors.

Strong return of 5.9 percent
Swiss Re’s dividend yield is currently a very good 5.9 percent (as of May 2019). Profit was rather weak, especially in 2017 due to the numerous natural disasters. For a reinsurance company, however, this is not all negative. Because after years with a lot of losses, new business in particular is higher , as the losses increase the prices and demand for reinsurance companies. So, if the natural disasters are contained, business should continue to do well for the next few years.

Strong dividend stocks also in 2019
There could also be similar record values in 2019 . Although the economic development has weakened somewhat recently, it is still in the green area. The business of many listed companies is also continuing to develop well. Shareholders who are loyal to reliable dividend payers do not have to pay attention to price fluctuations and can still achieve good returns over the long term.

What is a dividend?

The dividend is the part of the net profit that stock corporations distribute to the shareholders. It is decided by the shareholders at the general meeting. However, there is no right to a dividend. It can happen that a dividend is not paid despite a profit if this is necessary for business reasons. Usually the dividend is paid out on the day after the general meeting. This results in the so-called dividend discount on the price. According to this, the share price often falls by an amount equal to the dividend after the dividend has been paid out. However, because prices are always based on supply and demand, the dividend discount is based on the fact that investors are willing to pay less for the share if the dividend has already been paid out.

The dividend yield

The dividend yield is a key figure that is very important for investors and can be calculated from the quotient of the share price and the dividend amount. The key figure indicates how the capital invested in the security would yield interest at the current price level through the dividend distribution. It must be noted that stocks are always subject to price fluctuations, which can have a major impact on the overall profitability of the investment.

  1. Shares with high dividends in the DAX
    Deutsche Telekom AG
    With an annual turnover of 80 billion euros, Deutsche Telekom AG is the largest telecommunications company in Europe . Most recently, the US subsidiary T-Mobile was on everyone’s lips. Over the past five years, the number of customers has increased from 30 million to more than 75 million. The increased cash flow is to be used for increasing dividends in the next few years. In 2018, the company raised the dividend to EUR 0.75 (2017: EUR 0.70).

Allianz SE
Allianz is one of the most reliable dividend payers in the German share index (DAX) . In the past eleven years, the dividend has increased eight times. The insurance group intends to maintain the distribution rate of 50 percent of the annual profit in the future. Since the beginning of 2017, Allianz has also carried out three large share buyback programs with a volume of 6 billion euros, which is generating additional demand for the shares. The dividend paid out in 2018 from EUR 9.00 was increased to EUR 9.50.

Daimler AG
In 2017, the Stuttgart-based car manufacturer Daimler AG paid out 3.65 euros per share to its shareholders, the highest dividend payment in the company’s history. In 2018, the distribution was reduced to 3.25 euros per share. In 2019 it is 3.14 euros. Despite the high return of 5.9 percent, investors should take into account that the car manufacturer could face problems in the future — keywords: e-cars, diesel crisis, trade war. On the positive side, Daimler has kept its dividend at least constant over the past eight years and has increased it five times during this period.

  1. High dividend stocks in the SDAX
    Wacker Neuson SE
    A significant dividend increase is expected in the future at the construction equipment and construction machinery manufacturer Wacker Neuson SE. In 2017, EUR 0.60 was paid out to the shareholders. In 2018 it was already 1.10 euros per share. In 2018, the Munich-based company achieved a remarkable dividend yield of 6.66 percent at a price of EUR 26.78 .

Corestate Capital Holding SA
Corestate Capital Holding SA is an investment company that can look back on good business development in recent years . This made it possible for the board of directors to increase the dividend. While EUR 1.00 was paid out to shareholders in 2016, EUR 2.00 was already distributed in 2017. In 2018 there was again an increase to 2.50 euros per share. The dividend yield in 2018 was 8.20 percent.

  1. High dividend stocks in the MDAX
    ProSiebenSat1
    The TV provider ProSiebenSat1 is a very high dividend MDAX stock . The provider, which is one of the media titles, achieved a dividend yield of 8.1 percent in 2018 with a share value of EUR 15.00 and a distribution of EUR 1.19 per share. Although this is a very good number, investors should note that the Group’s share is in a permanent downward trend due to the weak business development.

Aareal Bank AG
Aareal Bank has only been paying dividends to its shareholders since 2014. Since then, however, it has increased from 0.75 to 2.50 euros. In 2018, experts initially assumed that the dividend would be reduced to EUR 2.10, which ultimately happened. At a price level of EUR 29.00 per share, the bank was able to offer a very good dividend yield of 7.2 percent in 2018 . The payout ratio, which is around 60 percent of profits, should remain high in the future.

German Euroshop AG
Deutsche Euroshop AG operates as the operating company of many shopping centers in Austria, Germany and several Eastern European countries . In recent years, the group has increased its dividend in 5-cent steps. This method was also retained in 2018, although the number of shares had increased by approximately five million as a result of an increase in capital. In the 2017 financial year, the company paid out EUR 1.45 to its shareholders; in 2018 it was EUR 1.50 accordingly. In 2018, the dividend yield was around 5.6 percent at a share price of EUR 27.00.

  1. High dividend stocks in the TecDAX
    Telefónica Deutschland Holding AG
    In 2018, the shareholders of the fixed line and mobile communications provider Telefónica Deutschland Holding AG received a dividend of EUR 0.26 per share. At a price level of EUR 2.80 per share, the company thus offered a comparatively high dividend yield of 9.4 percent.

Siltronic AG
The Munich-based company Siltronic AG has only been one of the best dividend payers in the TecDAX since 2018 . In 2018, the company paid its shareholders a dividend of EUR 5.00 per share. In 2019, investors were paid EUR 3.80 per share for the 2018 financial year. The dividend yield in 2018 was 6.91 percent at a share price of 146.55 euros. Investors should note here, however, that the semiconductor business is quite cyclical. There could therefore be fluctuations in future business development.

Freenet AG
Typically, telecommunications company stocks are among the stocks with the highest return. The internet and mobile communications company Freenet AG is no exception. In the past five years, the company has continuously increased its dividend distribution . For 2017 and 2018, the dividend was increased from 1.60 euros to 1.65 euros. According to the company, the dividend should continue to be kept stable. With a share price of EUR 26.63 in 2018, the dividend yield was a strong 9.72 percent. Freenet is one of the best dividend payers.

Are dividend stocks a “safe haven”?

Dividend stocks

Basically, companies that let their shareholders participate in the success and generate sustainable profits belong in every portfolio.

Many studies have shown that companies that regularly allow their investors to participate in the success show the best increases in value over the long term. And even if things get “wild” on the stock exchanges, the dividends can limit the price risks. This is especially true of stocks with an outstanding return. As a rule, these are moderately growing companies with a stable and established business . The investment requirement is lower compared to technology and growth companies, which gives the company’s board of directors more leeway for higher payout ratios. If there is still potential for growth, that is of course also good.

The look into the future
However, it is important for any security-minded investor to look carefully when a company pays a high dividend. Because there are always cases where the payout ratio is not sustainable. This is the case, for example, if the dividends do not come from profits, but are taken from the reserves of the companies. However, the dividend yield may only be so high because the stock has fallen significantly due to poor business prospects. In both cases, dividends may be cut or even canceled in subsequent yearscome. It is therefore particularly important not to invest in companies whose dividends draw from the company’s assets or are clearly threatened with decline. Because such companies will not be able to afford large dividend distributions in the long run.

High dividend stocks from the USA
Lastly, let’s take a look at some of the best dividend stocks in the US . Dividends make up a large part of the income generated in the markets. This becomes particularly clear when we compare the DAX and the DAX price index again. The DAX is a so-called performance index that tracks the share price plus dividends. The second-mentioned index shows the pure price development of the 30 DAX stocks. Dividends are an aspect that shouldn’t be neglected. At best, however, the payouts should increase over time, and the companies involved need to grow. Companies that meet these criteria can be found in the USA in particular .

Stocks with rising dividends
More precisely, the aim is to look at stocks that have a long history of rising dividends, that have consistently outperformed the index for many years, and that are equally low-risk. Such societies must have a business model that generates profits across all crises and economic cycles. At first glance, it seems unreal to combine all of these properties in a single title. In the US, only about 50 of the approximately 7,000 public companies listed on the stock exchange actually meet these specific criteria. These companies are also known as “dividend aristocrats”.

What are dividend aristocrats?
Dividend aristocrats are characterized by the fact that the dividend has been steadily increased over a period of at least 25 years . From this it can be concluded that the companies have grown over decades, defied all crises and still managed to generate excess capital. The business model of a dividend aristocrat must aim for lasting success and not just for the next six months. This aspect should be a plus point for investors.

A dividend aristocrat is very well positioned in terms of infrastructure
Such companies are excellently positioned and can assert themselves well in their industry . Warren Buffett would say they have a moat. Such a hurdle prevents competitors from squeezing market share from them.

Example “Coca Cola”:
Let’s take the dividend aristocrat Coca Cola as an example. Many competitors have failed to bring a soft drink onto the market that is more successful. Many copycat products lag far behind the success of Coca Cola. In the meantime, the brand has become the standard and has even become culturally anchored. At the same time, the company is very well positioned in terms of infrastructure.
Safe investment with attractive returns
A dividend aristocrat has consistently beaten the broad market and has shown equally low price losses in weak market phases. The values are suitable for both inexperienced investors and experienced investors . These stocks are a good choice for those who take a low risk and at the same time do not want to forego a high dividend and performance. With aristocrats, it is possible to beat the index and generate stable passive income. Of course, as with all investments, there is no guarantee.

Conclusion: With dividend stocks, investors get attractive return opportunities

Companies that pay dividends to their shareholders are historically less volatile than the general stock market. In the event of market slumps, this can prove beneficial for investors. In times of crisis, such as the 2008 financial crisis, financially strong corporations in particular are less at risk of bankruptcy than mid and small caps . Because large companies find it easier to access capital even in difficult market phases. A company’s business prospects play an equally important role. If these are bad, dividend cuts or cuts may occur in the following years. Last but not least, investors should check whether the dividend payments are draining the company’s substance. Usuallythe operating earnings per share should be greater than the dividend , and thus demonstrate a really high profitability.

Dividends Shares are attracting increasing interest from investors around the world. The main focus here should be on large companies that have firmly established themselves in their sector and that continuously distribute the dividends they earn to their shareholders.

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