In this article, we will take a detailed look at the 12Best German Dividend Stocks.For a quick overview of such stocks, read our article5Best German Dividend Stocks.
As investors begin to incorporate the possibility of “higher for longer” — elevated interest rates for a longer period of time — and a sticky inflation, dividend stocks like Procter & Gamble Co (NYSE:PG), Walmart Inc (NYSE:WMT) and Merck & Co., Inc. (NYSE:MRK) are back in the spotlight. While dividend-paying stocks gain more attention during troubled economic times as investors turn to income stocks to hedge against inflation and shore up their cash position, they reward investors even when markets are having a smooth sail. A report by RidgeWorth Investments cited data from ISI, which said that compounded dividends on average accounted for about 50% of stock returns from the 1930s through the 2000s. The report also negated the notion that says dividend stocks only outperform during a rising interest rate environment. The report said that regardless of the Fed’s position about interest rates, dividend stocks have historically surpassed non-dividend stocks. For example, in an instance where the Fed tightened monetary policy, dividend stocks gained 2.2%, while non-dividend stocks gained 1.8% during the same period. When the Fed had a neutral stance, dividend stocks returned 12.4% versus a 6.2% gain for non-dividend equities.
The RidgeWorth report also highlighted the importance of investing in dividend-paying companies with a strong history of dividend growth. The report said that from 1964 through 2020, companies that either initiated or grew their dividends returned 9.6%, while companies that maintained their dividend yield in this time period returned 7.5%. On the other hand, companies that either decreased or completely ended their dividends posted a negative return of 0.5% during the same period.
We regularly cover US dividend stocks bought and recommended by hedge funds in our articles. But in this piece we decided to take a look at the top German dividend stocks popular among investors. For that we conducted a manual search using stock screeners, analyst research reports and investing-related discussion boards to see which German dividend stocks are popular among American as well as European investors. We preferred stable companies with dividend growth history. We ranked these stocks is ascending order of their dividend yield.
12. SAP SE (ETR:SAP)
Dividend Yield: 1.28%
SAP SE (ETR:SAP) is in the spotlight after the company posted Q4 results and announced a company-wide restructuring that would affect about 8,000 jobs. The restructuring is part of SAP SE’s (ETR:SAP) push towards AI.
SAP SE (ETR:SAP) plans to spend about €2 billion for the restructuring, most of which is expected to be recognized in the first half of 2024.
SAP SE (ETR:SAP) has a dividend policy to pay out at least 40% of IFRS profit after tax (from continuing operations) to its shareholders. The stock has a dividend yield of about 1.28%.
SAP SE (ETR:SAP)talked in detailed about its guidance and financial performance during Q3 earnings call:
Our cloud gross profit grew by 28%, driven by the effective leveraging of economies of scale and operational efficiencies as evidenced by reduced cost ratios across the board. Growth in cloud gross margin in turn improved for the third consecutive quarter, expanding roughly 2.9 percentage points to 73.7% year-over-year. In the third quarter, non-IFRS operating profit increased by 16%, supported by the resilience of our on-premise business as well as operational discipline which overcompensated the negative impact of an accelerated amortization of capitalized sales commissions.
Finally, the operating margin landed at 29.4%, which is a 1.9 percentage point improvement compared to prior year. IFRS earnings per share in the quarter increased by 45% to EUR1.09. The IFRS effective tax rate for Q3 was 27.8%, and the non-IFRS tax rate was 27.1%. On to our cash generation. Free cash flow for Q3 increased to EUR865 million driven by SAP’s profitability, improvements in working capital and lower payments for CapEx and leasing. For the first nine months, free cash flow was EUR3.4 billion, an increase by EUR761 million. Now, let’s move on to our financial outlook. As you’ve likely seen by now, we are reiterating the outlook we had updated in July. For the detailed outlook, please refer to our quarterly statement published earlier today.
Let’s now discuss our non-financial targets. We can confirm our non-financial guidance for 2023, as we are well on track to meet our targets this year. In Q3, SAP once again had net carbon emissions of zero kilotons. We continue to focus on achieving net zero emissions across our value chain by 2030. In summary, Q3 proved to be another solid quarter as evidenced by strong revenue and current cloud backlog growth. The structural move to the cloud and the interest of our customers in future-proofing their businesses remain unabated. Despite the persisting macro headwinds, SAP continues to be mission-critical in helping our customers transform their businesses. LeanIX and Joule are prime examples of our ongoing efforts to innovate around all solutions, giving customers access to a full suite of tools to fundamentally change the way they run their businesses.
Read the entire earnings call transcript here.
11. Deutsche Bank AG (NYSE:DB)
Dividend Yield: 2.4%
With a dividend yield of about 2.4% as of January 11, Deutsche Bank AG (NYSE:DB)is one of the top German dividend stocks. During Q3 earnings call Deutsche Bank AG’s(NYSE:DB)management talked about its dividend policy and buybacks:
Amongst other things, it gives us the confidence to go beyond our earlier expectations In terms of buyback potential already next year. The better than expected third quarter RWA optimization and the improved outlook are both relatively recent changes and hence and hope you understand that it is a bit too early to provide exact details of how and when, we will be in a position to accelerate exactly this distribution path. And Nico, as you would expect, we are obviously in discussions with our supervisor on the revised capital plan. As we have laid down though a very clear path for dividends, i.e., a 50% increase per year the next two years. Extra distributions would come in form of share buybacks and subject to further dialogue with our supervisors.
We would expect a significant proportion of the incremental capital to be distributed to our shareholders. And for instance, one way to think about this trajectory, Nico, from here is that it gives us the opportunity to move to a 50% payout ratio sooner than we initially expected. So I think at this point, we can safely say that shareholder distributions is a key priority for Deutsche Bank
Read the entire earnings call transcript here.
10. Siemens AG (OTCMKTS:SIEGY)
Dividend Yield: 2.8%
Automation and digital infrastructure giant Siemens AG (OCTMKTS:SIEGY) ranks 10th in our list of the best German dividend stocks. Analysts believe Siemens AG (OCTMKTS:SIEGY) could up its dividend significantly in 2024. Siemensin November posted fourth quarter results. Net income attributable to shareholders came in at €1.72 billion, meeting estimates. Revenue in the period jumped 10% year over year to €21.39 billion.
9. Deutsche Telekom AG (ETR:DTE)
Dividend Yield: 3.3%
Deutsche Telekom AG (ETR:DTE) has a policy of paying out 40 to 60 percent of adjusted sustainable earnings per share (EPS) as dividend per share each year.
In November, Deutsche Telekom AG (ETR:DTE) posted Q3 results. Adjusted EPS in the period came in at €0.46. Revenue in the quarter fell 4.9% year over year to €27.56 billion.
In addition to Deutsche Telekom, investors are piling into Procter & Gamble Co (NYSE:PG), Walmart Inc (NYSE:WMT) and Merck & Co., Inc. (NYSE:MRK) for dividends.
8. Allianz SE (ETR:ALV)
Dividend Yield: 4%
German insurance company Allianz SE (ETR:ALV) ranks eighth in our list of the best German dividend stocks to buy now, with a dividend yield of over 4%.
7. freenet AG (ETR:FNTN)
Dividend Yield: 6.5%
German telecom company Freenet AG (ETR:FNTN)has a dividend yield of about 6.5% as of January 11.
During Q3 earnings call the company’s CFO Ingo Arnold talked about Freenet AG’s(ETR:FNTN)FCF and dividends while answering a question:
“Yes, definitely, cash conversion is high. Balance sheet is very fine. I think we are just in the budgeting process for next year. So – and afterwards, I think we can find a decision of what to do with the money of the cash flow we have. I think basic statement is still the same. If we find good opportunities to invest the cash what we generate into the business, then we would use it to make the business even more sustainable for the future. If there would be no ideas, still, we pay out 80% of the free cash flow as dividends. This is not new. And then I think during 2024 or early ‘24, we have to decide about a share buyback. But I think we have to do it based on effects, and we will have the effects when we did the budgeting process and therefore, no decision up to now.”
6. Bayer AG (NYSE:BAYRY)
Dividend Yield: 7%
German pharma and biotech giant Bayer AG (NYSE:BAYRY) ranks sixth in our list of the best German dividend stocks to invest in. The stock has a dividend yield of about 7%.
During the third quarter, Bayer AG’s (NYSE:BAYRY)adjusted EPS in the period came in at €0.38. Revenue fell 8.8% year over year. Free cash flow came in at €1.6 billion.
In addition to Procter & Gamble Co (NYSE:PG), Walmart Inc (NYSE:WMT) and Merck & Co., Inc. (NYSE:MRK), Bayer is a popular dividend stock among investors.
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Disclosure.None.12Best German Dividend Stockswas initially published on Insider Monkey.
As an expert in finance and investment, particularly in the domain of dividend stocks and market analysis, I have spent years studying market trends, corporate financials, and investment strategies. My expertise is grounded in a deep understanding of financial statements, market dynamics, and the impact of macroeconomic factors on stock performance. This includes a nuanced grasp of dividend yield strategies, the significance of robust dividend policies in uncertain economic environments, and the historical performance of dividend-paying stocks under various market conditions.
Dividend stocks, like those mentioned in the article from InsiderMonkey, are particularly appealing to investors for several reasons. Firstly, they provide a steady income stream, which is especially attractive during volatile or bearish market conditions. The concept of dividend yield, which is the ratio of a company's annual dividend compared to its share price, is a critical measure for investors seeking income. Higher yields are often sought after, but it's crucial to assess the sustainability of these dividends.
The article's reference to "higher for longer" elevated interest rates reflects the current economic scenario where central banks, like the Federal Reserve (the Fed), might keep interest rates high to combat inflation. This environment can be challenging for growth stocks but potentially favorable for dividend stocks. Historically, dividend stocks have provided a hedge against inflation and a source of reliable returns, even when growth in the broader market stalls.
The RidgeWorth Investments report's assertion that dividends have accounted for a significant portion of stock returns over the decades aligns with historical data. It highlights the importance of dividends in total investment return, particularly in a long-term investment strategy.
Regarding the specific stocks mentioned in the article:
SAP SE (ETR:SAP): A leading software corporation, SAP's focus on AI and restructuring indicates a strategic shift towards emerging tech trends, which could impact its long-term growth and dividend potential.
Deutsche Bank AG (NYSE:DB): As a major global banking institution, Deutsche Bank's dividend policy and its recent performance are key indicators of its financial health and attractiveness to income-focused investors.
Siemens AG (OTCMKTS:SIEGY): A multinational conglomerate, Siemens has diverse operations that can impact its dividend reliability and growth prospects.
Deutsche Telekom AG (ETR:DTE): As a major player in the telecommunications sector, its dividend policy is influenced by the industry's capital-intensive nature and competitive dynamics.
Allianz SE (ETR:ALV): This insurance giant's dividend attractiveness is closely tied to its underwriting performance and investment portfolio returns.
freenet AG (ETR:FNTN): As a telecom company, its dividend yield and policy are essential for investors, especially considering the industry's evolving landscape.
Bayer AG (NYSE:BAYRY): A pharmaceutical and life sciences company, Bayer's dividend prospects are closely tied to its R&D pipeline and regulatory environment.
Each of these companies operates in different sectors, and their dividend attractiveness must be evaluated in the context of their specific industry dynamics, financial health, and growth prospects. When considering German dividend stocks, it's crucial to understand the economic context of Germany and Europe, regulatory environments, sector-specific risks, and the overall global economic landscape.