For Financial Broker or Advisor use only.
Investing in Dividend
Paying Stocks
Brochure
Do you know the only
thing that gives me
pleasure? It’s to see
my dividends coming in.
John D. Rockefeller
2
Contents
Why consider dividend paying stocks?
2
The case for dividends
3
The power of dividends
4
Risk/return trade off
5
Reinvesting dividends
6
Dividend growth is key
7
Zurich Life Dividend Growth Fund
8
M&G Dividend Growth Fund
9
1
Why consider dividend
paying stocks?
Whether you are a seasoned investor or a
novice, a diversified portfolio should be at
the heart of your investment strategy.
For investors with a medium to long-term investment horizon, investing in
high-yield equities (high dividend paying stocks) is an option. A high-yield
stock is generally considered to be a stock whose dividend yield is higher
than the yield of its benchmark average (such as the MSCI World).
Some key points to consider:
•
More companies are now paying dividends to shareholders.
Looking at the S&P 500, the number of dividend paying
companies stands at 83%* (418) of companies listed on the
index.
Interestingly, the dividend payout ratio (i.e. the percentage of net
income paid to shareholders in the form of dividends) stands at
31.6% - one of the highest non-recession levels since 2004.*
•
With yields on fixed income currently at historical lows, investors
are looking for alternatives and many are turning to high quality,
dividend paying companies to invest in.
•
Firms that pay out high dividends are generally mature, profitable
and stable. Coca-Cola is a great example of such as company. It
has been paying uninterrupted dividends since 1920**.
* Source: Factset, 24 March 2014.
**Source: Standard & Poors, September 2013.
For the purpose of this brochure, US data has been solely used due to the availability
of long-term data.
2
The case for dividends
Investors are paying more and more
attention to dividends and the companies
that pay them, due to their ability to
provide a predictable source of return,
offer the potential for capital appreciation
and help buffer market volatility.
History has shown that dividends can have a powerful effect on the total
return of a diversified investment portfolio.
The chart below breaks down the contribution of share price increases
and dividends to the total returns of US large-cap companies by decade.
Overall, since the 1870’s, dividends have represented over 42% of the
total investment returns.
Total return of US large-cap stocks by decade
400%
350%
1990s
1950s
300%
1980s
250%
1920s
200%
150%
100%
1900s
1870s
1880s 1890s
1940s
1910s
1960s
2010 2013
1970s
1930s
50%
2000s
0%
-50%
-100%
Cumulative Dividend Return
Cumulative Price Return
Source: Robert J. Schiller Research Partners, January 2014. Illustrations are based on the historical returns of the S&P 500 Index.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
3
The power of dividends
For those of us that invest in global stock
markets, we do so with the expectation
that we will make money in the medium
to long-term.
The importance of dividends to the total return of any medium to longterm investment cannot, and should not, be ignored.
To demonstrate the power of dividends, the chart below divides the
S&P 500 into an equal-weighted total return index*, all dividendpaying stocks and non dividend-paying stocks. The numbers speak for
themselves when you consider a $10,000 investment into each category
in January 1972.
$10,000 invested in the ‘S&P 500 Equal-Weighted Total Return Index’
would have grown to $220,700. Not bad, when you consider the same
investment in non dividend-paying stocks would only have grown to
$28,400. However, $10,000 invested in the group labelled ‘all dividendpaying stocks’ would have expanded to $416,511.
* A
n equally-weighted index gives the same weight, or importance, to each stock in a portfolio or index fund.
The smallest companies are given equal weight to the largest companies in an equal-weight index fund or
portfolio. This allows all of the companies to be considered on an even playing field.
S&P 500 dividend payers vs S&P 500 non-dividend payers
$450,000
$416,511
$400,000
$ Amount
$350,000
$300,000
$250,000
$220,700
$200,000
$150,000
$100,000
$50,000
$28,402
All Dividend-Paying Stocks
Jan-14
Jan-12
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Jan-88
Jan-86
Jan-84
Jan-82
Jan-80
Jan-78
Jan-76
Jan-74
Jan-72
$10,000
Non Dividend-Paying Stocks
S&P 500 Equal-Weighted Total Return Index
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved. Returns based
on monthly equal-weighted geometric average of total returns of S&P 500 component stocks, with components reconstituted
monthly. Monthly data 31/1/1972 – 28/02/2014. Returns are not inflation adjusted.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
4
Risk/return trade off
Not only have the dividend payers of the S&P 500 outperformed the
non-dividend payers over the thirty two year period 1980 - 2012, they
have done so with less volatility.
Compound annual growth rate from 1980 - 2012
16%
14%
% Performance
12%
10%
8%
6%
4%
2%
0%
0%
5%
10%
15%
20%
25%
30%
% Volatility
S&P 500 Dividends Payers
S&P 500 Non-Dividends Payers
Source: S&P Dow Jones Indices, First Trust. Data from 1980 – 2012. Returns are not inflation adjusted.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
5
Reinvesting dividends
Reinvesting dividends can be a powerful
wealth builder.
The chart below compares an initial investment of $10,000. US equity
investors who invested in dividend paying stocks and had reinvested
their dividends grew their investment 75 fold over the past 45 years
to an impressive $753,092. While those that chose not to reinvest
their dividends and relied solely on an increasing share price grew their
investment 20 fold to $201,982 over the same period.
$800,000
$753,092
$700,000
$600,000
$500,000
$400,000
$300,000
$201,982
$200,000
$100,000
S&P 500 Total Return
Dec-13
Dec-11
Dec-09
Dec-07
Dec-05
Dec-03
Dec-01
Dec-99
Dec-97
Dec-95
Dec-93
Dec-91
Dec-89
Dec-87
Dec-85
Dec-83
Dec-81
Dec-79
Dec-77
Dec-75
Dec-73
Dec-71
Dec-69
$10,000
S&P 500 Without Dividends
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved.
Returns based on monthly equal-weighted geometric average of total returns of S&P 500 component stocks, with components reconstituted monthly. Monthly data 31/12/1969 – 28/02/2014. Returns are not inflation adjusted.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
6
8
Dividend growth is key
Reinvesting dividends can play a key role
in the total investment returns received by
investors.
However, equally important is dividend growth, i.e. the percentage
increase in the value of dividends paid by a company from one year to
the next. Mc Donald’s is a great example of a company that has almost
30 years of dividend increases, with dividend growth averaging 11%
over the past four years*.
A history of strong dividend growth could indicate that future dividend
growth rate is likely, although not guaranteed, signalling long-term
profitability for a company. A recent research study compiled by Société
Générale** found that the single biggest contributor to nominal equity
returns across developed markets over the past 40 years has been
dividend growth.
To illustrate how important dividend growth is to total returns, let’s look
at the graph that was discussed on page 4, this time with the addition
of a ‘Dividend Growers’ group, i.e. dividend paying companies that raise
their dividends. The initial investment returns from this group far exceed
those of all other groups, with $10,000 expanding to an impressive
$564,328.
* Source: Standard and Poors, October 2013.
** Source: Société Générale, February 2014.
How dividend growers outperform
$610,000
€564,328
$510,000
$416,511
$410,000
$310,000
$220,700
$210,000
$110,000
$28,402
All Dividend-Paying Stocks
Non Dividend-Paying Stocks
S&P 500 Equal-Weighted Total Return Index
Dividend Growers & Initiators
Jan-14
Jan-12
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
Jan-88
Jan-86
Jan-84
Jan-82
Jan-80
Jan-78
Jan-76
Jan-74
Jan-72
$10,000
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved.
Returns based on monthly equal-weighted geometric average of total returns of S&P 500 component stocks, with
components reconstituted monthly. Monthly data 31/1/1972 – 28/02/2014. Returns are not inflation adjusted.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Benefits may be affected by changes in currency exchange rates.
7
Zurich Life Dividend
Growth Fund
The Dividend Growth Fund was launched
in July 2005 to meet client demand for an
equity strategy with a dividend bias. It is a
global equity fund using a stock screening
process developed by Zurich and an
independent quantitative investment house.
The initial screening covers over 6,000 global companies and identifies
those with a higher than average dividend yield amongst their peer group
in their regional market.
It is crucial to identify and exclude companies where the dividend yield
is inflated due to a falling share price as a result of poor fundamentals.
Thus, the focus of the fund is not necessarily on very high dividend paying
companies, rather it is on those with an above average yield plus the
capacity to pay and sustain a higher dividend yield over time.
The Dividend Growth Fund is focused on identifying sustainable dividend
paying shares with the ability to grow that dividend in the future. The
approach is a value-based one and therefore, suitable as part of a medium
to long-term investment strategy.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: The income you get from this investment may go down as well as up.
Warning: This product may be affected by changes in currency exchange rates.
8
M&G Global Dividend
Fund
The M&G Global Dividend Fund was the
top selling equity fund in Europe for 2012*
and 2013.*
The fund aims to deliver a dividend yield above the market average, by
investing mainly in a range of global equities.
The fund manager employs a bottom-up stock-picking approach, driven by
the fundamental analysis of individual companies. The fund’s investment
strategy is to identify companies that understand capital discipline, have
the potential to increase dividends consistently and are undervalued by
the stockmarket. Dividend yield is not the primary consideration for stock
selection. The fund manager aims to hold around 50 stocks, with a longterm investment view and a typical holding period of three years.
* Source: Lipper, European Fund Market Review, 2013 Edition.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: The income you get from this investment may go down as well as up.
Warning: This product may be affected by changes in currency exchange rates.
Warning: Past performance is not a reliable guide to future
performance.
This ‘Investing in Dividend Paying Stocks’ brochure
should be read in conjunction with the ‘Under the Bonnet’
and ‘Sales Aid’ documents for both the ‘Zurich Life Dividend
Growth Fund’ and the ‘M&G Global Dividend Fund’. Each of
these documents are available on the ‘Fund Choice’ section of
zurichlife.ie
9
Print Ref: ZURL IB 174 0614
Zurich Life Assurance plc
Zurich House, Frascati Road, Blackrock, Co. Dublin, Ireland.
Telephone: 01 283 1301 Fax: 01 283 1578 Website: www.zurichlife.ie
Zurich Life Assurance plc is regulated by the Central Bank of Ireland.
Intended for distribution within the Republic of Ireland.
M&G International Investments Limited is authorised and regulated by the Financial Conduct Authority in the UK.