Skimpy returns

Investors being cheated despite record German dividends, group says

Deu Euro Kaufkraft
We would prefer bills. Source: AP

Germany’s bourse-listed companies will pay out a record €50 billion ($61.7 billion) in dividends this year and, while that’s a lot of money, critics say the companies are being skimpy – and getting skimpier. The hefty increases in payouts have blinded many investors but Marc Tüngler, managing director of shareholder lobby DSW, isn’t fooled.

“We remain dissatisfied with the share of earnings paid out to shareholders,” he said. “We think a ratio of 50 percent as a risk premium for shareholders would be justified. But instead of getting closer to that figure, we’re unfortunately seeing that countless companies are using their high earnings to further reduce the payout ratios.”

In these days of rock-bottom interest rates, Germany’s average 2.5 percent dividend yield — the payout relative to the share price — blows away the returns being offered by fixed-income investments. That’s two-and-a-half times the yield on a 5-year corporate bond, and government bonds with far longer maturities offer only a fraction of that.

“One has to ask if not now, then when?”

Marc Tüngler, managing director of DSW

That helps to explain why companies flush with cash thanks to demand for “Made in Germany” are successfully paying out less of their profits in relative terms. Since 2015, companies listed in the four main indices – the DAX, MDAX, SDAX and TECDAX – have reduced their average payout ratio (dividend as a proportion of net income) to 42 percent from 45 percent.

In the blue-chip DAX index of 30 leading stocks, almost half of the firms are paying out less than a third of their earnings. The average dividend hike among German listed companies this year is 11 percent, according to a study released by the FOM University of Applied Sciences and shareholder group DSW this week.

DAX heavyweights Daimler, Allianz and Siemens will pay out a combined €10 billion. Meanwhile, 45 percent of the companies that aren’t included in the top four stock indices won’t pay any dividend at all. And around a quarter won’t pay a dividend even though they made a profit.

Mr. Tüngler of DSW said it was disturbing if companies weren’t making profits or were refusing dividends in the current dream scenario of a surging economy and low interest rates. “One has to ask if not now, then when?” he said.

Georgios Kokologiannis is a stock-market correspondent for Handelsblatt in Frankfurt. To contact the author:  Kokologiannis@handelsblatt.com

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