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Dividends make up 40% equity returns

11 March 2014


A new study shows that dividends often yield higher than bonds

Dividends have accounted for 40% of overall returns in European equities during the past 40 years, according to a new study by Allianz Global Investors.

The research revealed that dividends often yield higher than 10-year sovereign bonds. For more than two years investors have received a substantially higher dividend yield for holding European equities than for bonds, said the firm.

The study also showed a difference between Europe and the US. European companies tend to pay "particularly generous" dividends compared to their peers in the US.

"A focus on sustainable dividend payments has become a clear pattern on the CEO agenda of listed companies in Europe and it looks like the dividend theme is here to stay as it is a convincing way of gaining shareholder trust.

"This policy does require a lot of discipline, but the good news for investors is that you'd be hard pushed to find a better proxy for the robustness of a company's earnings expectations than its dividend policy," said Joerg de Vries-Hippen, CIO of European Equities.

Dennis Nacken, author of the study, said there is further scope for dividend hikes, but warned that focusing solely on high-dividend payments is misleading.

"It is the business model of a company, above all, that should shape expectations for sustainable earnings, in addition to a shareholder-friendly corporate policy," he said.

 


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