Pillars of Strength

Trends 07.02.2019
Reading time: 2 minute(s)

Turbulent times can also lead to changing investor behavior. An alternative may be shares of companies that regularly distribute dividends over a long period of time. Such securities are very popular as a kind of interest replacement—for obvious reasons.

There are companies that are growing fast, make the headlines with spectacular innovations and—no sooner than the market becomes slightly more turbulent—are brought back down to earth with bump. And then there are the others who simply do a good job, and have been doing so for decades: Dividend achievers are characterized by a stable business model and sustainable business development. They pursue prudent risk management and follow the rules of good corporate governance. Typically, they also operate in defensive markets. Products such as electricity, water, medicines, yogurt, washing powder or cosmetics are always in demand.

Frequently regular dividend payments

The best-in-class includes companies that have paid dividends without interruption for several years. Mind you, they also retain adequate reserves and own funds to finance their business. The consistency and continuity of good corporate governance are reflected in the share prices: The share value is usually less volatile than other global indices and therefore more predictable. In addition, recent developments illustrate that dividend shares survive the turmoil of global financial crises better. Although their share prices also fell sharply in 2008, the slump was still significantly less than those of the S&P 500.

No playing field for speculation

Dividend strategies are inherently long-term strategies. They usually yield a high return, provided the dividends are reinvested on an ongoing basis. However, it should be born in mind that nothing is impossible. The global economy is in a transitional phase. Even dividend achievers are only to some extent pillars of strength.

Risks of investing in financial markets

Investing in financial markets involves risks. The price, value and return of securities depend, among other things, on the economic development and the creditworthiness of the issuers. Furthermore, historical yields and financial market scenarios are no guarantee for the future performance of an investment.

Five selection criteria for potential dividend achievers

  • Companies with a long dividend continuity (over 10 years without reducing the distribution)
  • Dividend yield of at least 3 percent
  • No companies where the dividend payment could be jeopardized by a dent in earnings
  • Companies with a positive earnings outlook
  • Companies with strong balance sheets

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Additional information

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