Tips for quick investing: This is how you can benefit from the dividend cut on Swiss stocks

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Manuel Boeck

Novartis shares fell sharply last Thursday as the stock exchange opened and closed the trading day with a loss of 3.7 percent, or 3.28 francs. Many shareholders were shocked at first when they looked at the price chart. However, there was no downside to the price drop; on the contrary, the pharmaceutical company paid a dividend of only 3.3 francs per share that day. Therefore, the share price is automatically reduced by the amount of the dividend.

On this day, shares trade “ex-dividend,” according to stock market slang. It will take some more time for the amount to reach the shareholders’ deposits. This was the case for Novartis on Monday, March 11. Dividend season on the Swiss stock market traditionally starts at the beginning of March. Until May, hardly a day goes by without a company trading on the Swiss stock exchange with a dividend cut.

For example, Roche will hold its general assembly meeting on Tuesday, followed by ABB and Givaudan on March 21. At the general meeting, everyone who owns shares in the relevant company usually also receives the dividend. This is why stocks with high, regular payouts increase as they approach dividend payout.

This harkening back to the days of ex-dividends, now increasingly known as “dividend obsessions,” offers investors an interesting starting point. Because many stocks compensate for the discount, especially during a time when the stock market environment is positive, like this year. Dividend reductions often attract investors with the expectation of “quick profits.”

Despite the theory: There are attractive entry opportunities

“Theoretically, the price adjustment reflects the dividend payment and should not be exploited,” says Fabienne Hockenjos-Erni, head of investment at BLKB, when asked by Cash.ch. However, the amount of the dividend payment often does not fully correspond to the price reaction. This creates opportunities. On the one hand, these can be used by reinvesting dividends. On the other hand, there may be attractive entry opportunities with quality stocks. These often quickly offset the decline in dividends, especially when the stock market environment is positive, as this year.

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Although the share price often rises in the months before the dividend date as investors stock up on securities, it can still be beneficial to buy even shortly before the payment date. And anyone who reinvests distributions each year after the dividend is cut benefits from the compound interest effect. Albert Einstein is said to have once said: “Compound interest is the eighth wonder of the world. Whoever understands it will make money from it, everyone will pay the price.” The same goes for dividends.

The table below shows selected Swiss companies that will hold general meetings and subsequent dividend payments starting next week. Dividend yield refers to the price as of March 11, and “GM date” refers to the general assembly date:

Recruitment agency Adecco is an example of why, despite high payouts, almost no shares should be bought before or after the dividend cut on April 12. The stock has lost significant value since the beginning of the year. Downside risk further increases as staffing markets continue to show a sequential slowdown. Banque Cantonale Vaudoise (BCV) is also in the same division: Analysts predict that traditionally high-dividend-paying bank stocks will fall an average of 12 percent over the next twelve months. The strong performance of BCV shares over the past two years has pushed the valuation to its highest level in history.

“Anyone who wants to bet on a stock’s near-term recovery after a distribution should first be aware of the potential for disappointment. You may need to hold shares for longer than you planned,” warns Thomas Urs Fischer, investment manager at Berner Kantonalbank (BEKB).

Mobile phone provider Mobilezone, for example, has yet to sustainably overcome its dividend decline in April last year. The company from Rotkreuz achieved slightly higher sales but less profit in fiscal 2023. It may be beneficial to get involved now due to improving business figures, and the payout rate is also expected to increase in the coming years. The dividend yield is already 6.3 percent. However, the stock has gained around 8 percent since the financial figures were released on Friday.

Swiss Re with momentum and high dividends

Cembra, Swiss Life, Swiss Re, Zurich Insurance, Novartis, Roche, Holcim, Kühne+Nagel, Geberit and SGS – which BLKB’s Hockenjos-Erni believes have above-average potential to avoid a foreseeable “external dividend” upheaval stocks are To compensate for good performance quickly:

Swiss Re (dividend yield 5.5 percent) in particular looks interesting: the reinsurer has achieved all key targets for 2023, increased the dividend for the first time in four years and has high solvency (300 percent). Momentum also speaks for the stock. Since the beginning of the year, this title has increased by 15 percent, reaching its highest level since the Corona epidemic in March 2020. The reinsurer, which has a forward price-to-earnings ratio (P/E) of 9, also has a more advantageous valuation than Zurich Insurance (13) or Swiss Life (14).

Berner Kantonalbank’s Fischer sees positive short-term momentum in Zurich Insurance, Swiss Life, SGS and Novartis. Zurich is “a classic dividend pearl with a solid balance sheet and widely diversified business activities”. But Swiss Life can also boast strong dividend growth in recent years, while SGS is once again valued more positively than ever and is capitalizing on the sustainability trend as a driver of growth.

Novartis impresses with a strong development pipeline, but as mentioned earlier, it was already trading “out of dividend” on March 7. The still-obvious dividend bias will likely be quickly eliminated as Novartis is likely to meet its own forecasts for 2024; There is room for positive surprises.

Roche and Nestlé, two other classic dividend stocks, will likely need more patience this year. At least Roche’s certificates of participation reached a higher level again ahead of Tuesday’s general assembly meeting, but such a development is still a long time coming to Nestlé. However, it is conceivable that the narrative will get better as the year progresses: management measures, payout ratio with room for improvement and the shift from cyclical to defensive stocks are likely to provide a boost.

According to Fischer, Roche and Nestlé are two essential stocks for a portfolio despite current weakness. “Roche is a leader in oncology and delivers strong dividend growth over the long term,” says BEKB chief investment officer. Nestlé, on the other hand, is the market leader in food production and has a strong track record of dividend growth.

Diversification and growth are important

When it comes to dividend strategies, it is often advisable to build a diversified portfolio: That is, instead of optimizing only on the expected distribution amount, there are other additional conditions. These include continuity of dividend growth (stable or increasing over the years) and payout ratio.

Additionally, care should be taken not to place overly large bets on sectors to avoid concentration risks. Stocks in saturated markets with little growth potential rarely hit the turbos after deployment, as Swisscom has proven year after year.

Source :Blick

Tim

I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.