The starting pistol for two special tracker certificates was fired on 10 January 2020, when Leonteq opened the door to investment in the "DividendenAdel". Behind this title is a sophisticated strategy based on the long stock market experience of Christian W. Röhl. The experienced investor and author ("Cool bleiben und Dividenden kassieren", roughly translating as "Stay cool and pocket dividends") is convinced of the importance of sustainable payout quality for investment success. He has therefore defined four criteria for the systematic selection of equities that have earned the right to be "ennobled", as it were. The tried-and-tested approach was applied to an index methodology at the start of the year. To be included in the DividendenAdel indices calculated for Germany and Switzerland, an equity must first meet certain criteria in terms of liquidity and market capitalisation. All the companies that make it past the tradeability filter then go through the actual selection process.
Alongside continuity, the payout ratio, yield and growth of the dividends are also put on the test bench. The first of these criteria is only considered met if a company has managed at least ten years in a row without cutting its dividend. For the payout, the method stipulates that the distribution (smoothed over three years) is between 25% and 75% of the profit achieved. That means companies should not be parsimonious, but at the same time not overdo the spending sprees either. "If too much is paid out, there might soon not be any money for investment," explains Christian W. Röhl. Equities whose payouts do not attract an average interest rate of 1% (in both historic and indicative terms) are eliminated. Here the innovative thinker has deliberately set a low bar. For Röhl, the long-term total return is more important than the short-term income. The "magic square" is rounded off by the dynamism and momentum of profit sharing. There must have been at least three increases in the dividend within ten years. The most recent payout must also be above that of the previous year. "Anyone paying a higher dividend is looking to the future with optimism, thereby sending a strong signal to the capital markets," explains Christian W. Röhl.
It is hardly surprising that the coronavirus pandemic is making it anything but easy for companies to remain faithful to a sustainable dividend policy. The new benchmarks were consequently unable to escape the market sell-off that ensued shortly after their launch. Nevertheless, they have since made up some ground on the market as a whole again. The tracker certificate on the DividendenAdel Schweiz Index has almost returned to its CHF issue price. The latest setback was in any case insufficient to change the long-term outperformance of the strategy on a historical simulation (see graph). At the beginning of October, Christian W. Röhl carried out the first scheduled rebalancing process for both indices. Significant changes were made in Germany, with only six companies managing to keep their places. "At the moment Switzerland is living up to its reputation as a cradle of stability when it comes to dividends as well," the responsible expert says.
Fourteen of the 18 companies that were previously included in the national index also satisfied all the "nobility criteria" with their payouts in 2020. What is more, this was true for the three heavyweights of the domestic market: Nestlé, Novartis and Roche. Several equities from the second and third tiers have also remained in this exclusive club. In Emmi, a small cap heads the Swiss selection list of Christian W. Röhl. The dairy group has not cut its profit share for more than 16 years. In 2020 holders of its shares were even able to enjoy an increase of one third in the dividend. The prospects of this pattern continuing are good: in the first six months, Emmi profited from "stay at home" consumption due to coronavirus, the Lucerne company posting organic growth in sales of 3.8% on the home market while coming in significantly ahead of expectations across the group. The initiator of the index can also announce a new addition: "Swiss Life has for the first time passed the hurdle of ten years without cutting dividends." According to Röhl, the insurer also combines "an almost ideal typical payout with a high yield and remarkable dynamism." As all the examples show, with the tracker certificates from Leonteq investors are adding a selection of equities from Switzerland or Germany with strong fundamentals to their portfolio. Following the latest rebalancing, both underlyings are in the optimum position to make the best out of what could be a difficult 2021 dividend season.
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