The profits of the companies listed in the German leading index DAX are falling, but dividend distributions are rising to a record high. The dividends of the entire DAX family are also higher than ever – but there are risks.
This year too, Germany’s largest stock exchange companies will pay a record dividend to their shareholders: The total of 160 companies listed in the DAX, MDAX and SDAX will pay a total of around 62.5 billion euros to their shareholders. The previous year’s figure was exceeded by 1.6 percent, according to an evaluation by the German Association for the Protection of Securities Ownership (DSW).
According to study author Christian W. Röhl from the Institute for Strategic Finance (isf) at the FOM University, this is the third dividend record in a row. The evaluation shows that 24 out of 40 companies in the DAX leading index pay a higher dividend than in the previous year.
The consulting firm EY points out that dividends rose slightly overall, while overall profit development in 2023 is pointing in the opposite direction. The consolidated results of the 40 DAX companies (annual profit after taxes) then fell by a total of six percent to 120.9 billion euros.
Financial and automotive industries at the top
Financial expert Röhl nevertheless states: “We should not forget that we have increasing profits in many industries. Especially in the financial sector, where banks and insurers benefit from the capital market environment and interest rates.” In addition, car manufacturers had strong sales and high profit margins last year.
Financial market expert Röhl explains what the drivers of the record dividend in the DAX are: “You can really condense it into two sectors. About a third of the dividends come from car stocks and another 20 percent from financial stocks, i.e. banks and insurance companies.”
Growing risks, pressure on profits
The fact that half of the total dividend volume comes from two sectors is, on the one hand, a signal of strength, but it also entails risks for the future. The question is whether the large car companies can continue to make such high profits with electromobility alone even after the combustion engine has been phased out. “If that doesn’t work, then we will have a significant loss in dividends,” says Röhl.
EY partner Mathieu Meyer would also not be surprised by dividends falling again in the future. The economic situation is bleak, and both the economic and political risks are increasing rather than decreasing: “If the pressure on profits continues this year, dividend distributions will probably also be put to the test,” expects Meyer.
Allianz and Mercedes-Benz pay out the most
Overall, the majority of the distribution amount comes from the 40 DAX companies. The analysis by the consulting firm EY comes to a total of 53.8 billion euros that the 40 DAX companies will pay out to their shareholders this year. According to the DSW dividend study, the top payers in the DAX this year are Mercedes-Benz with 5.5 billion euros and Allianz with 5.4 billion.
However, this does not reflect the strength of the German economy, explains Röhl: “These are companies that have positioned themselves globally, are very successful and are doing very good business internationally despite the problems on their home market.”
According to DSW, 13 companies in the DAX are increasing their dividends by double-digit percentages. In six of them it is even more than 30 percent. At Porsche AG the increase is 129 percent, at Commerzbank it is up 75 percent and at Deutsche Bank it is up 50 percent.
Smaller companies are under pressure
A look at the second and third row of listed companies shows a completely different picture anyway, says Mark Tüngler, managing director of the German Association for the Protection of Securities Ownership: “This shows that companies that are not only globally positioned and the poor economy in Germany and Europe cannot compensate with profits in Asia or the USA, but are under pressure. And even if they make profits, they make sure that the money stays in the house and is not distributed to the shareholders,” said Tüngler.
According to the DSW, not even half of the small and medium-sized companies are increasing their dividends. Even one in five MDAX and SDAX companies does not pay a dividend.
Bianca von der Au, ARD financial editorial team, tagesschau, April 15, 2024 12:39 p.m