Erste Asset Management

๐Ÿ‹ Dividend basics for shareholders

๐Ÿ‹ Dividend basics for shareholders
๐Ÿ‹ Dividend basics for shareholders
Share post:

If you are interested in investing in equities, you may at first only look at the share price performance. The bigger the upside potential, the bigger your interest. In addition to rising prices, there is another factor that makes listed companies interesting: the annual dividend they pay out to their shareholders. In general, however, it should also be noted that investing in equities with dividend payouts entails risks as well as opportunities.

After all, it offers investors a welcome chance to earn a profit from shares even if the prices are not really moving. And even in the case of falling prices, shares that pay out high dividends can absorb some of the losses. So you get your share of the profit every year, similar to the lemon harvest.

โ” What is a dividend?

The purchase of a share makes the buyer a co-owner of the respective company. Therefore, shareholders also usually participate in the profit of the company; in other words, they receive a dividend.

Companies that are able to pay out dividends are often companies with a high market capitalization and a long tradition on the stock exchange. Companies that pass on part of their profits to their shareholders in the form of a dividend have a strong foundation and a certain earnings power that helps them to cushion setbacks when stock market prices fluctuate more strongly.

๐Ÿ“Š What is the level, the amount of the dividend based on?

Upon successful conclusion of a fiscal year, the owners decide at the Annual General Meeting (AGM) whether and how much dividend will be paid out. The amount is based on the financial situation of the company and takes into account the expected business performance.

๐Ÿ—“ How often are dividends paid out?

In Europe, dividends are usually distributed annually and benefit all shareholders. In individual cases, however, dividends are also distributed quarterly or even monthly. Such companies are mainly found in the USA.

โŒ Does a company have to pay out a dividend?

No โ€“ the dividend is no foregone conclusion and there is no legal right to receive one. If it is important for the success of the business, the entire company profit can be used for investments or to form reserves. While the shareholders may fall short of receiving a payout at that point in time, there is the chance that the profits that were ploughed back by the company will lead to rising share prices in the long run.

๐Ÿ’ฐ What happens to a dividend in an investment fund?

An equity fund invests in several companies, including groups that pay a dividend. With many equity funds, investors have the choice between two options:

A shares with annual payout


Investors in these units benefit from an annual distribution. The amount of the distribution is determined annually by the investment company that manages the fund. However, there is a legally regulated lower limit for the amount of the distribution.

T shares without payout


As soon as a company distributes a dividend, this increases the calculated value of the fund. The dividends are generally used by the fund management for further share purchases, i.e. reinvested.

โž— What is the dividend yield?

The dividend yield is a ratio by which the profitability of a share can be assessed. It is expressed as the dividend paid out divided by the share price. A dividend of EUR 10 per share and a share price of EUR 200 therefore gives you a dividend yield of 5%.

Example:
10 โ‚ฌ (Dividend per share) x 100      = 5 % (Dividend yield in percent)
200 โ‚ฌ (Share price)

The higher the dividend yield, the more interesting the share becomes for investors. The reason is obvious: these shares promise an attractive annual profit participation, and a high dividend yield signals a successful business. One word of caution though: a high dividend yield may also be the result of a rapid share price decline. Therefore, one should also resort to other key ratios when assessing a share, e.g. the price/earnings ratio or the equity ratio.

๐Ÿ“ˆ Dividends make up a large part of the performance of a stock market

A look at the MSCI World, one of the most important share indices in the world, shows that dividend payments account for a significant proportion of the overall performance (“total return”). The performance difference between the share index that includes dividend payments (MSCI World net return Index) and the share index that does not include dividends (MSCI World Price Index) is almost 40% over the past ten years!

Note: Past performance is not a reliable indicator of future performance.

๐Ÿ’ถ Share buy-back vs. dividend payout โ€“ what is the difference?

In addition to divided payments, companies have another way of returning capital to their investors: the share buy-back. This is how it works: by buying its own shares, the company reduces the number of shares traded on the stock exchange. The reduction leads, all other things being equal, to a rise in share prices, from which the shareholders benefit.

Also, the dividend part of the group profit can be split among fewer shares; this is where shareholders benefit again, this time from higher dividends. The companies benefit as well: the share buy-back usually increases the earnings per share.

Don’t want to miss any more of our blog posts? Click here to subscribe ๐Ÿ‘‡

๐Ÿ’ก Equites with strong dividends under one umbrella

Investors who would rather delegate the informed selection of shares with high dividend yield should leave it to experts in the field and invest in a dividend fund โ€“ such as the ERSTE RESPONSIBLE STOCK DIVIDEND fund.

This equity fund invests globally in the shares of selected companies in the developed markets that are subjected to a fundamental analysis. The following characteristics are taken into account when selecting companies:

  • high to medium market capitalization,
  • attractive dividend yield,
  • comparatively low price fluctuations in the past.

The level of the dividend yield is only one criterion of whether a share should be admitted into the fund or not. It is also crucial to see whether the dividends can be paid from profits or whether the company has to eat into its own assets. A high dividend yield could also be the sign of an imminent crisis of a company. The more regular the dividend pay-outs, the lower the volatility โ€“ which is also the goal of ERSTE RESPONSIBLE STOCK DIVIDEND.

ERSTE RESPONSIBLE STOCK DIVIDEND โ€“ opportunities and risks at a glance:

Benefits for investors

  • Broad diversification across equities from developed markets
  • Participation in companies that act in line with high environmental, moral, and social standards
  • Active stock picking on the basis of fundamental criteria
  • Chance of attractive ongoing return and value increase

Risks to be aware of

  • The price of the fund may be subject to strong fluctuations (high volatility)
  • Due to the investment in foreign currencies, the fund value may be affected by foreign exchange fluctuations
  • Capital loss is possible
  • Relevant risks for the fund are in particular: credit and counterparty risk, liquidity risk, custody risk, derivative risk, and operational risks. For comprehensive information about the risks associated with the fund, please refer to the prospectus and the key investment information pursuant to sec. 21, part II, chapter โ€œRisk Notificationsโ€ of the Austrian Alternative Investment Fund Managers Act

๐ŸŒฑ Focus on sustainability โ€“ not only in terms of dividend

The managers of the ERSTE RESPONSIBLE STOCK DIVIDEND fund target the shares of companies that are ESG (environmental social, and governance) pioneers. As part of our holistic ESG approach, we also take into account ethical aspects.

๐Ÿ” Investing in dividends with a plan and a goal

Investors who want to make use of the perspectives offered by high-dividend shares can invest a lump sum in ERSTE RESPONSIBLE STOCK DIVIDEND or build capital on the basis of a fund savings plan (s Fond Plan) with as little as EUR 50 a month.

Want more information on the topic of dividends?
You can find more articles here ๐Ÿ‘‡

The fund employs an active investment policy and is not oriented towards a benchmark. The assets are selected on a discretionary basis and the scope of discretion of the management company is not limited.

For further information on the sustainable focus of ERSTE RESPONSIBLE STOCK DIVIDEND as well as on the disclosures in accordance with the Disclosure Regulation (Regulation (EU) 2019/2088) and the Taxonomy Regulation (Regulation (EU) 2020/852), please refer to the current Prospectus, section 12 and the Annex “Sustainability Principles”. In deciding to invest in ERSTE RESPONSIBLE STOCK DIVIDEND, consideration should be given to any characteristics or objectives of the ERSTE RESPONSIBLE STOCK DIVIDEND as described in the Fund Documents.

RESPOND TO THE ARTICLE

Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to ยง 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to ยง 21 AIFMG, and the key information document can be found on the website www.erste-am.com under โ€œMandatory publicationsโ€ and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.

N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to ยง 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investorโ€™s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to ยง 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.

It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

Erste Asset Management GmbH is affiliated with the referring Sparkassen banks and Erste Bank.

Please also read the โ€œInformation about us and our securities servicesโ€ published by your bank.

Subject to misprints and errors.

Leave a comment Required fields are marked with *

Your email address will not be published. Required fields are marked *