Fund in this article
Shares in this article
ETFs in this article
Indices in this article
by Sven Parplies, Euro on Sunday
S.he same ritual for 65 years: Procter & Gamble increases the dividend. Since 1956, the payment has increased from one cent per share to $ 3.03en. Last year alone, Procter & Gamble paid out a total of $ 7.8 billion to its shareholders.
Nowhere in the world is the dividend as important as in North America: companies there distributed 549 billion dollars to their shareholders in the past year, more than three times as much as the competition in Europe. Eight of the ten largest dividend payers are in the US, including the giants Microsoft, Exxon, Apple and JP Morgan. This is shown by statistics from the Janus Henderson property management company.
American companies not only pay large sums of money, they are more reliable than the rest of the world. This has been impressively confirmed in the Corona crisis: According to Janus Henderson, every third company worldwide has cut or canceled its distribution in the pandemic, in Europe even every second. In North America, investors only suffered discounts at one in seven companies.
A big advantage for the Americans: The top corporations there earn a lot of money and can therefore give their shareholders a generous share. The 30 companies in the Dow Jones Industrial will be this year, according to data from financial service Bloomberg net more than four times as much Earn money like the 30 German stock exchange giants listed on the DAX.
The will of the management is just as important as the financial strength: “Our first use for freely available cash is dividend payments”, praised Procter & Gamble in its annual report. Cuts in the payout are severely punished: When the telecom group AT&T changed its dividend guidelines in May and thus indirectly announced a cut, the share fell by ten percent. The investment firm Bahnsen Group regards AT & T’s decision as an “unforgivable sin”. After all, many retirees would rely on the regular payments.
The level of dividend yields in the US is somewhat disappointing. While the DAX is currently up in this category around 2.9 percent comes, the American Dow Jones creates onlych 1.9 percentt. Here, too, there are cultural differences: In the US, a second instrument is used more often in addition to the dividend – share buybacks. The companies buy their own shares from the market and stamp these papers in. This will distribute future profits across fewer stocks. So the earnings per share increase and with it the value of the remaining shares. At the same time, the company has to use fewer papers for the next dividend payment and therefore has greater scope for an increase.
Nonetheless, you can still get considerable dividend yields with American stocks, but you have to be patient. For example, those who took Procter & Gamble shares into their custody account at the turn of the millennium will now have a dividend yield of just under double digits measured against the cost price. And by the way, the share price has also risen.
Procter & Gamble is one of the so-called aristocrats. Among the Brisans are the companies that have consistently increased their dividends for at least 25 years. So you also increased during the great financial crisis and Corona. 65 companies from the S&P 500 can show such a series.
The right assessment
Because dividends are popular with long-term investors, the corresponding stocks are very popular. According to the Bloomberg database, the aristocrats were always more expensive than the broad American stock market from 2013 to 2019 based on the price / earnings ratio. At its peak, the premium to the S&P 500 was more than 15 percent. Since the Corona crash, however, the situation has shifted: Many technology stocks have become expensive and have raised the valuation level of the broad market. By contrast, the aristocrats – many come from more defensive industries – have not fully taken advantage of this dynamic. That is why these shares were recently available at a discount of around ten percent to the overall market. The aristocrats are therefore valued unusually favorably.
Dividends from overseas have another advantage: while German companies usually distribute dividends in one fell swoop in spring, American companies usually distribute the payment over four dates. Such quarterly dividends give companies more flexibility in financing, which was valuable in the Corona crisis. The quarterly rhythm should also accommodate investors if they want to finance part of their livelihood with the dividend. With just one large payment, on the other hand, there is a great temptation to spend the money immediately.
The oil companies Exxon and Chevron are among the high-percentage among the US aristocrats. Like the entire industry, the two US giants have to assert themselves against the growing competition from alternative energy sources. Nevertheless, analysts expect the dividends to rise slightly from both groups. Chevron, with a dividend yield of currently more than five percent, is better positioned on the balance sheet and has already announced that it will buy back shares. In the Corona year, the group raised the dividend for the 33rd time in a row.
Abbvie has a dividend yield of more than four percent. The pharmaceutical company, which was spun off from dividend aristocrat Abbott Laboratories in 2013 and has since increased its dividend, makes money primarily with the arthritis drug Humira. However, due to the expiry of patent protection, income from this product will decline significantly from 2023. Until then, new drugs must fill the gap.
At just under two and a half percent, the dividend yield at Procter & Gamble is comparatively low, but less risky. In the package, the three shares come to a dividend yield of a little m on the basis of the payments expected for the coming yearor more than four procent.
A long dividend history and the highest possible dividend yield. The ETF U.S. Dividend Aristocrats invests in more than 100 US companies that have increased their dividends for 20 consecutive years. So the index is a broader interpretation of the classic aristocrats. Thanks in part to lower fees, the ETF outperformed most actively managed US dividend funds. The dividend yield was most recently 2.2 percent.
Siemens Qualitt & Dividende USA, managed by the Siemens Group’s asset management company, actively invests in US dividend stocks. In addition to the retailer Target and the tractor manufacturer Deere, the pharmaceutical company Abbvie was also among the largest positions. The continuity of the dividend payment is an important criterion when choosing stocks. The fees are low for an active equity fund.
As a rule of thumb, the higher the dividend yield on a stock, the greater the risk. Especially with percentages greater than five percent, investors should take a closer look. The editorial team selected three individual titles from the USA: the oil company Chevron, the pharmaceutical company Abbvie and the consumer goods manufacturer Procter & Gamble.
Image Sources: Andrew Olscher / Shutterstock.com, Maynard Case / Shutterstock.com