Dax companies earn less, but pay more dividends

Shareholders are pleased: likely none of the 30 companies will lower the dividend; 15 of them are expected to pay more than last year, including Adidas, Allianz, RWE, Infineon and Deutsche Telekom. While most companies will not comment on the dividend before the start of 2019, the nine-month balance sheets and statements of the nine-month DAX managers that the Handelsblatt has badessed already provide reliable forecasts.

"Almost all companies can pay their dividends," says Andreas Hürkamp, ​​an badyst at Commerzbank, but limits: "The dividends are only a glimpse of the rear view mirror of the past year." Given the decline in sales in China, Europe and the United States the question of whether BMW, Daimler, VW and the Continental supplier would be well-advised to pay just under ten billion euros.

Bayer could also make good use of the € 2.6 billion expected for shareholders to pay back more money, given the wave of complaints over the takeover of Monsanto seed manufacturer. But CEO Werner Baumann has promised to "aim for a dividend at least comparable to that of the previous year".

And even Thyssen-Krupp surprised its shareholders by presenting its annual balance sheet last week. In fact, the shareholders of Thyssen-Krupp had to be brave that day. Because the conglomerate is still in the depths of the crisis. Net debt rose 21% to 2.4 billion euros, the already weak equity meltdown together by 4% to 3.3 billion euros – and the net profit was modest with one cent per share.

Nevertheless, as in the previous year, shareholders will receive 15 cents of dividend per share. The price quickly rose by three percent and Thyssen-Krupp became the winner of the day at Dax. Shareholders have at least somewhat rebadured the payment of the 27% price drop in the last twelve months.

Thyssen-Krupp is not the only one to show how stable dividends are important in these difficult times. The Bayer pharmaceutical group, whose price has halved since last June due to the acquisition of the controversial Monsanto seed specialist, wants to keep the dividend "at least at the level of last year," promises Werner Baumann, managing director .

To keep its promise, Bayer must depart from its usual corporate policy of paying 30 to 40% of its adjusted net income per share to shareholders – and divest itself of half of its net profit, which was reduced to just over five billion euros during this fiscal year.

Less profit, stable dividend

It is unlikely that any of Dax's 30 companies will reduce its dividend next spring. Not even the many companies that have shocked their shareholders like Continental, Heidelberg Cement, BMW, Daimler, Henkel and Fresenius over the last few months with a profit warning.

And unlike Thyssen-Krupp, all these companies do not pay their dividends by nature. This is ensured by a cautious distribution policy during the last boom years. This puts companies in an increasingly difficult time able to maintain the stability of their dividends, even if their profits decline.

And as the combined companies probably earn five billion euros less than the previous year and "only" should reach a little more than 90 billion euros, the distribution ratio goes from 39 to more than 40%. So, in terms of profit, more money goes to shareholders – this remains a cushion less for more difficult times.

But this is exactly what most Dax companies need to prepare for, especially the many Dax industrial groups. According to Chris Williamson, chief economist of the European market research institute Markit, the "miserable development of exports" and, most importantly, the "disappointing sales of automobiles" are increasingly noticeable. .

Because not only in Germany, the economy weakens, as evidenced by the decline of 0.2% of gross domestic product in the third quarter and the IFO index, month after month, declining steadily, according to the survey conducted from more than 9,000 companies. The leading leading economic indicators are also down in Europe, as calculated by the Markit Institute from surveys of businesses and consumers. With a sales share of just under 50% on average, Europe is by far the largest sales region for Dax companies. The boom in Asia and the strength of the US economy have not changed the game.

The renewed weakness in Europe, but increasingly in China, has resulted in nearly a dozen of Dax 's 30 companies shocking their shareholders at least once with a profit warning since the spring. Recently, Covestro announced a decline in its earnings before interest, taxes, depreciation and amortization compared to the previous year.

Even with third quarter results at the end of October, Covestro, a long-standing and growing Covestro specialty chemicals group, expected slightly better earnings. However, the sudden drop in world prices of precursor chemicals on the world market has slowed down the deterioration of the former Bayer division, which had been ruined.

Neither Covestro nor any of the other companies that surprised their shareholders with earnings warnings, including BMW and Daimler, Henkel and Merck, expect shareholders to pay lower dividends – even if all of these companies should to earn less in 2017 than in 2017. "Our goal is to increase the dividend each year, but at least to maintain it at the level of the previous year", this is the basic principle of BASF since years. He felt obliged to CEO Kurt Bock and his successor, Martin Brudermüller.

Chief Financial Officer Hans-Ulrich Engel recently added to investors: "Driven by our strong free cash flow", BASF wanted to increase the dividend per share every year. Despite the recent earnings warning and a net profit down about 10%, investors can therefore expect at least a stable dividend or even slightly higher.

The Handelsblatt predicts, along with the other cycling-sensitive companies, rather cautiously and relies on an unchanged dividend of 3.10 euros per share, for a total distribution of 2.85 billion euros. This equates to about half of the total annual net profit and therefore corresponds to a current rate in the industry, trade and consumer sectors, as recommended by the shareholder protectors.

Former public enterprises that are particularly expendable

Apart from Thyssen-Krupp, no company will be able to transfer more money to its shareholders than it deserves. For utility companies Eon and RWE as well as for Deutsche Post, the ratio – ie the relationship between net profit and dividend payment – is expected to be at the top of the range internationally accepted, around 60%, against 80% at Deutsche Telekom.

Telekom could simply use this money given the many investments needed in the infrastructure, including building a powerful 5G network for a faster Internet. But Telekom has already proposed to increase its dividend from 65 to 70 cents per share. This gives a total of 3.3 billion euros. The expected net profit, of just under four billion, is only slightly higher.

However, absolute net profit is not used by Telekom as a reference. Until now, the Bonn-based group has tied its dividend to the development of free cash flow. This is changing now. The company's policy now is to direct payments towards the development of adjusted net earnings per share. The fact is: In the post office and Telekom, the federal shareholder collects a total of 1.35 billion euros with.

Most companies continue to make far fewer profits: Adidas and Continental account for about one-third, and Covestro, the specialty chemicals group, accounts for only a quarter. Healthcare group Fresenius, its subsidiary Fresenius Medical Care (FMC), listed in Dax, and the brand company Beiersdorf even spend only about a fifth of their profits. Not surprisingly, FMC CEO Rice Powell even offered the shareholders the 22nd dividend increase despite the recent earnings warning. Parent company Fresenius is aiming for the 27th consecutive increase.

The newcomer, Wirecard, Dax's newcomer, only does this for about 7% of his profits. "As a growing company, a significantly higher dividend makes no sense for us," says chief financial officer Alexander von Knoop, explaining the company's own policy and, according to Dax, atypical. Shareholders are not bothered by this. In the past year, the stock has increased by almost 50%. No business is so successful.

This seems different with car manufacturers. With nearly ten billion euros in dividends, BMW, Daimler, Volkswagen and the Continental supplier account for a quarter of the total Dax-30 dividends. BMW, Daimler and Continental have at least once warned their shareholders against lower than expected profits. The exhaust gas scandal and the complex test of exhaust gases with the new WLTP technology also weigh on revenues and the decline in car sales in the three major regions of the United States, China and from Europe.

High return as alarm signal

Nevertheless, it is unlikely that automotive companies will affect their dividends. Dividend yields are remarkable: measured by the current share price, BMW investors have reduced their dividend yield by 5.4% or even 7.2% at Daimler.

What looks attractive at first glance is an alarm signal for Andreas Hürkamp, ​​an badyst at Commerzbank: "The Daimler market is expecting a halving of the dividend over several years." His argument: Daimler's return on such a high return because the price has fallen sharply and shareholders are expecting a decline in profits and dividends in the future.

The record dividends of many other companies are also accompanied by a rapid fall in stock prices. Since the beginning of the year, the DAX has posted a twelve percent mark in the red. Based on the current low prices, investors reduced the shares of Dax's 30 companies with an average dividend yield of 3.4%. That's more than last year, where the return was 2.9% – and significantly more than the shareholders who buy bonds from the same companies.

For example, the shares of BASF, BMW, Daimler, Eon, Telekom, Allianz and Munich Re generate a dividend of at least 4.5%. Anyone who lends money to these companies and buys corresponding corporate bonds however receives only an annual interest rate of just over zero and 1.5%. Who puts his money on the savings account, gets nothing. This means that less than 2.5% inflation currently can not achieve a positive return with annual distributions.

But it is important that they are reliable and never sink. Dividend increases thanks to stable and satisfactory payments in times of crisis – Munich Re's dedication to this tradition is that it has never paid its dividend since 1969. Nine Dax companies have almost always increased their dividend over the period. of the last decade, including during the severe financial and economic crisis, but at least have kept it steady. In addition to Munich Re, these include Fresenius and its subsidiary FMC, Bayer, Beiersdorf, Henkel, Linde, SAP and Siemens.

Above all, billions of pension and investment funds attach great importance to the stability of dividends in order to better plan with the funds of their clients. As a result, larger role models can be found on Wall Street. Here, Coca-Cola and pharmaceutical manufacturer Johnson & Johnson have been steadily increasing their payments since 1963, the 3M conglomerate carrying yellow post-it stickers since 1959 – and the maker of Pampers Procter & Gamble for 60 years, the maker of Philip Morris tobacco for over 80 years.

Or Stanley Black & Decker: The amalgamated company, headquartered in New Britain, Connecticut, was created in its current form in 2009, but dividends have existed since 1877. This is not the case when World War I and World War II, and the 1907 stockquake, which was almost zero, or in the crash of 1929, shareholders had to give up their dividends. German companies can not approach this tradition so quickly.