Dividends: a lifeline for portfolios

Dramatic times: In recent weeks and months, the leading German DAX index and other international indices have had a hard struggle. Whether Brexit, trade wars, Iran sanctions, or Italy – all of these have caused concern for investors. In such turbulent times, many investors will have wanted a constant in their portfolio – and for some, this constant is likely to have been dividends.

High distributions even in unsettled stock market periods

General consensus has it that paying reliable dividends represents good corporate policy. Even if business is not booming, many companies make every effort to pay a dividend to their shareholders. This can be seen in the consistently high dividends distributed by major German public limited companies. Even in 2018, which was a difficult year for the stock market, DAX stocks paid out a record amount of EUR 36.1 billion for the 2017 financial year, calculates business consulting firm Ernst & Young.^[1].

This represents a year-on-year increase of approximately 12.5 percent. The experts at Ernst & Young expect to see new record amounts distributed in the next two years as well.^[1]. They estimate that companies will have sufficient reserves to make further dividend payments.

However, investors must also bear in mind that record distributions in the past are not a guarantee of high payments in the future. If profits at a company dry up, at some point it will have used up the reserves from which it pays dividends.

Furthermore, when profit momentum drops off, the share price often comes under pressure as well. That is why, on its own, a high dividend return is not sufficient reason for buying a certain equity. Finally, from a purely mathematical perspective, a high dividend return can also be the result of a sharply falling share price.

What distinguishes the DWS Top Dividende fund

Anybody intending to invest in dividend stocks is well advised to look closely. A schematic approach can easily result in disappointment. With the DWS Top Dividende fund, the focus is therefore not solely on dividend returns, but also on dividend growth and pay-out ratios.

In addition, the companies are analyzed in terms of their fundamental data, future prospects, and capital discipline. This helps to counter any dividend disappointments and, where possible, outperform the market as a whole.^[2] The motto of fund manager Thomas Schüssler is to spare investors’ nerves whenever possible. That is also why he likes to refer to the equities dominating his portfolio as “boring stocks.”

Defensive orientation with a focus on long-term capital preservation

A key goal of any defensive fund is to preserve capital over the long term. As is the case with any strategy, this approach does not only have advantages. The conservative investment policy results in the fund often lagging behind the performance of traditional equity funds when stock markets rise sharply. However, this is a risk that Schüssler consciously accepts. His aim is to achieve a better risk-adjusted return than the broader market over the long term, that is to say across a complete market cycle.

Over the short to medium term, Schüssler expects stock market prices to rise only moderately in the coming months. This makes dividend stock even more valuable. “The significance of dividend payments for the total return will likely continue to increase, and they will make an above-average contribution toward the total return of the investment,” he explains. According to Schüssler, distributions could be supported by a continued global high or medium single-digit growth in profits.^[3]

All the facts and figures on DWS Top Dividende