I am pleased to share a positive news with you on the last trading day of the year here in the „Schlussgong“: According to a current forecast of the „Handelsblatt“, the 40 most valuable listed companies in Germany will distribute as much money to us shareholders as never before in the coming year. The DAX companies are expected to pay out a total of 52.4 billion euros in 2024. This would be around 1.5% more than this year and around 40% of the estimated profits of all DAX companies. However, this payout ratio is rather low compared to international standards. In the US and other European countries, payout ratios of 60% have been common for years.

Back to the DAX: Probably half of the 40 companies are expected to increase their dividend compared to the previous year. As you already learned in my post from Wednesday this week, however, dividends are underestimated by many investors. Long-term studies have shown, however, that they are responsible for about 50% of the long-term average stock returns. Therefore, I would like to show you below how to calculate the dividend yield and what matters.

So you calculate the dividend yield The formula for calculating the dividend yield is quite simple:

                                     Dividend

Dividend Yield = —————————

                                     Stock Price

For DAX values, the dividend yields are usually between 2 and 3%. This year, however, the average dividend yield was even 3.4%. For individual values it was significantly above 5%.

However, there is a methodological problem when calculating this ratio that cannot always be satisfactorily solved: Do you take into account the last paid dividend or the expected dividend? The first method has the advantage that the numbers are then secure.

The disadvantage is obvious: The old dividend does not necessarily give any indication of the future dividend. If you choose the expected dividend payout, you always have to expect that the expected payout may differ from the actual payout.

The published dividend yields usually refer to the current stock price and the dividend that the company last paid out to the shareholders. If an investor bought the stock at a lower price than the current price, his/her personal dividend yield will increase and vice versa.

If a company regularly increases its dividend (as the Warren Buffett value Coca-Cola has done for many decades), medium and long-term dividend yields of even double digits can be achieved. Such dividend aristocrats adorn every conservative portfolio.