The new kid on the blog/market

Just about Financial Independence and Retire Early

The new kid on the blog/market

Background

Today I would like to present two new stock market indices, i.e. a measurement of a set/group of stock prices, that have been up since about a year. These are the DivdendenAdel Germany Index and the DividendenAdel Switzerland Index. They monitor the stock market of some equities that satisfy some preconceived rules, which we will be explaining later. The term DividenenAdel is German and could be translated as Dividend Nobility. The naming and the strategy are due to Christian W. Röhl, who is an experienced investor from Germany, and has had great success with his game plan. The indices are maintained by LIXX. The paid dividends are reinvested into the index, which is known as the net total return principle.

The Numbers

The Swiss version is composed of 15 equities and the German one of 10. The selection of the shares is due at the end of the third quarter of each year. The position of each of the shares is about equal when reviewed at the end of September of each year. (Slight dependence on the price.) Let’s have a look at the charts.

The charts of the DividendenAdel Germany and DividendenAdel Switzerland indices.

Well, that does not look too good. But it was the year of Covid-19, which did hit hard. The Swiss index did come out with a plus after a year, the twin had a bit of loss. Let us compare it to another index.

The chart of the DividendenAdel Switzerland Index vs the DAX.

Note that points for the DAX can be found on the right-hand side of the figure. We can see that both, the chart of the DAX and the chart of DividendenAdel look very alike. This is probably how most of the charts of indices looked like this year.

The Strategy

The strategy focuses on a sustainable payout quality. Since the stocks satisfying the four criteria are not necessarily aristocrats, but do value the investors, they could be called “noble.” The base for the DividendenAdel Switzerland Index are all companies contained in the SMI, SMIM Mid Cap Index or SPI Extra Index. The base for the DividendenAdel Germany Index are components of the indices DAX, MDAX, SDAX but also the companies belonging to one of the market segments Prime Standard or General Standard.

If a company has different stock classes, only the most liquid will be taken into account. This population is then filtered step-by-step through the following criteria:

  1. Continuity: In the past 10 years, the dividends have been either raised or at least have not been cut.
  2. Payout: The smoothed payout ratio over the last three years lies between 25% and 75%.
  3. Yield: The cumulative yield over the past 5 years as well as the expected dividend yield are greater than 1% per year.
  4. Growth: The dividend has been raised in the past year.

Finally, the remaining equities are sorted by the average dividend yield of the last five years. Then the top 10 and top 15 are picked for the DividendenAdel Germany Index and the Dividendenadel Switzerland Index, respectively.

The Current Composition

Here is the current composition of the Swiss index:

Company Industry ISIN
Forbo Holding AG Flooring CH0003541510
Allreal Holding Ltd Real estate CH0008837566
Lindt & Sprüngli AG Confectionery CH0010570767
Novartis AG Pharmaceuticals CH0012005267
Roche Holding AG Pharmaceuticals CH0012032048
Baloise Holding AG Financial services CH0012410517
Emmi AG Food CH0012829898
Valiant Holding AG Financial services CH0014786500
Swiss Life Holding AG Financial services CH0014852781
PSP Swiss Property AG Real estate CH0018294154
Partners Group Holding AG Private equity CH0024608827
Schindler Holding AG Vertical transportation CH0024638212
Geberit AG Building Products & Equipment CH0030170408
Nestle SA Food CH0038863350
Helvetia Holding AG Insurance CH0466642201

Note that while at the beginning of the fourth quarter the weights of all stocks will be pretty much equidistributed, this might change over time due to changes on the stock market. It looks like they made an error or worked with incorrect data, though. According to Schindler’s Annual Report (cf. page 54) they have not increased the dividend in the past year, violating criterion #4 of growth focused companies.

For the German index we have:

Company Industry ISIN
Fuchs Petrolub SE Chemicals DE0005790430
Merck KGaA Pharmaceuticals DE0006599905
SAP SE Software DE0007164600
Siemens AG Conglomerate DE0007236101
Allianz SE Financial services DE0008404005
Münchener Rück AG Financial services DE0008430026
Gerresheimer AG Manufacturing DE000A0LD6E6
Brenntag AG Chemical distribution DE000A1DAHH0
Software AG Software DE000A2GS401
BASF SE Chemicals DE000BASF111

Finishing Thoughts

While there are a lot of dividend aristocrats in North America, they are very sparse here in Europe. This asks for a different investing strategy, which we will eventually be discussing on this blog, so that everyone can implement it to their own needs or even adjust it as needed.

One problem is that depending on the final sorting, the resulting list might not be diverse. For example, the Swiss index contains Roche and Novartis, two big pharmaceutical companies. If we were to apply this strategy ourselves, then it would be a good idea to just pick one of the two. Then we could take the next company of the resulting list that is obtained through the filtering and ordering discussed above into our portfolio. This would further diversify the portfolio.

As previously mentioned, it looks like Schindler was wrongly put on the list, which also speaks for implementing the strategy yourself. But then, who of us can afford a Lindt & Sprüngli share, which currently sits at around CHF 8’100. Thus, some adjustments to the strategy would be necessary.

It is possible to invest in the indices through trackers with a fee of just under 1%. Another reason to just apply the strategy and buy the positions themselves. More money for just a little bit more work 🙂

 

3 Responses

  1. Chris says:

    Interesting blog post. This seems like something new to me. Might try this strategy.

  2. […] two (or more) companies in the same industry, pick the higher rated one and skip the other. To see the best stock picks for Germany and Switzerland check out the blog post I wrote about the DividendenAdel […]

Comments are closed.