The new kid on the blog/market
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 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.
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.
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 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:
- Continuity: In the past 10 years, the dividends have been either raised or at least have not been cut.
- Payout: The smoothed payout ratio over the last three years lies between 25% and 75%.
- Yield: The cumulative yield over the past 5 years as well as the expected dividend yield are greater than 1% per year.
- 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:
|Forbo Holding AG||Flooring||CH0003541510|
|Allreal Holding Ltd||Real estate||CH0008837566|
|Lindt & Sprüngli AG||Confectionery||CH0010570767|
|Roche Holding AG||Pharmaceuticals||CH0012032048|
|Baloise Holding AG||Financial services||CH0012410517|
|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|
|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:
|Fuchs Petrolub SE||Chemicals||DE0005790430|
|Allianz SE||Financial services||DE0008404005|
|Münchener Rück AG||Financial services||DE0008430026|
|Brenntag AG||Chemical distribution||DE000A1DAHH0|
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 🙂