By Konrad Sippel
May and June are usually a good time for European investors, as these are the months when most companies pay out their dividends. This year, investors will likely appreciate these payments more than ever, since the low-interest environment has made attractive income rare and, at the same time, dividend pay-outs of European companies are at historical highs.
Usually focus on dividends is put on the so-called “dividend season” in May and June and indeed over one third of all European dividend payments in the calendar year take place in these two months with most other months scoring less than 10% of payments.
However, the date of dividend distributions varies among European countries. Swiss companies usually distribute their dividends in the beginning of the year, followed by German and French companies in the “dividend season”, while companies from the UK often pay their dividends in the second half of the year or in multiple payments spread over the year. This regional diversity helps to make dividend income from European stocks not a seasonal feature, but more constant, as long as investors are willing to adjust their portfolio regularly. Popular concepts for dividend investments, such as dividend indices, focus on the track record in dividend pay-outs and the share of company profits distributed to investors. This leads to a portfolio with improved dividend returns and the selection of economically healthy companies, but not to maximised dividend yields or evenly spread distributions over the calendar year.
Alternatively, maximum dividend concepts focus solely on the maximisation of dividend distributions and a more even spread of the pay-outs over the year. On a quarterly basis, the maximum dividend indices select the companies with the highest expected dividend pay-outs in the upcoming months. This means that the whole index portfolio is turned over on a quarterly basis. Reflecting the different dividend seasons in European countries, the index portfolio has a different country composition throughout the year, with a higher weighting of Swiss, German and French companies in the first half, and a stronger exposure to British companies in the second half of the year. Due to the stream of payments throughout the year in Europe, returns are higher than in the US or Asia-Pacific, when the same concept is applied there. While this methodology naturally implies higher transaction costs, the dividend yields can be improved significantly compared to the broader market and select dividend indices.
Such a dividend portfolio also provides investors with quite stable returns. For example, it recovered quickly after the financial crisis in 2008. Since the turn of the millennium, the dividend distributions led to stronger returns compared to the market, since dividend payments proved more stable than company earnings and accounted for the vast chunk of the portfolio’s overall returns.
To sum up, there is no need to shed tears at the end of the dividend season. In particular, European investors have sound possibilities to extend the beneficial season of dividend pay-outs and increase their dividend returns using transparent and rule-based index strategies.
Konrad Sippel is global head of business development at STOXX
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