Oxfam denounces high profit distributions from Dax companies

In an initial reaction, BMW confirmed that the group would “work climate-neutrally across the entire value chain by 2050 at the latest”. By 2030, the BMW Group will reduce the CO2 emissions of a vehicle over the entire life cycle – from the supply chain through production to the usage phase – by 40 percent compared to 2019. For its own plants and locations, the group wants to reduce CO2 emissions by 80 percent by 2030.

Daimler also referred to its efforts to protect the climate: “Our goal is to make Mercedes-Benz climate-neutral by 2039 – more than a decade before the year 2050, which the Paris Agreement provides,” said a company spokesman. The dividend proposed by the Board of Management and the Supervisory Board takes into account “careful and prudent weighing of the interests of all stakeholders” as well as the current business situation, liquidity and business prospects. For years, Daimler has been aiming for an annual dividend payment of 40 percent of distributable net profit. The dividend should be covered by free cash flow in the industrial business.

For several years now, investors and shareholders have been putting pressure on companies to do more to protect the climate. Large pension funds such as Calpers from California or the world’s largest asset manager Blackrock are pushing oil companies in particular towards a green energy transition. Under the name “ClimateAction100 +”, more than 600 investors worldwide with assets under management of over 60 trillion dollars have come together to commit companies to the Paris climate goals.

However, the pressure from shareholders has so far not led companies to sacrifice their dividend policy to protect the climate. On the contrary: high distributions go hand in hand with climate promises. The French energy company Total is a good example of this: at the general meeting in May, a large majority of shareholders endorsed a climate plan designed to make the company climate-neutral by 2050. At the same time, CEO Patrick Pouyanné proudly announced that the green change of course will have no impact on the dividends, which, according to Pouyanné, have not fallen for almost 40 years.

High payouts even in the difficult Corona year

It’s similar in Germany. A good half of the DAX companies paid a higher dividend this year for the difficult 2020 financial year that has just ended. With four billion euros, the insurer Allianz transferred the most to its shareholders – followed by BASF and Siemens with around three billion euros each. The biggest increases were at Daimler with an increase of 50 percent. SAP, Deutsche Post and the real estate group Deutsche Wohnen raised the dividend by around 15 percent each.

Overall, the – up to September 30 Dax companies – paid out just under 34 billion euros. That was about the same as the year before. Based on the total net profit of 43 billion euros, which has fallen by almost half compared to the previous year, this results in a payout ratio of a high 78 percent.

So more than three quarters of the profit flowed off to the investors. However, net income and income from the income statement are not necessarily a suitable measure of whether or not a company can afford dividends. Free cash flow, capital expenditures and debt are also important.

In the past fiscal year, billions in depreciation distorted total profit downwards – and thus the payout ratio upwards. The handling of dividends after the difficult Corona financial year 2020 shows that Germany’s large listed corporations are increasingly aligning themselves with the mechanisms of countries with better and longer share cultures. That means: dividends that are as stable as possible in bad years, as was done by BASF, for example, and moderate increases in good years. This is one of the reasons why the payout ratio for the difficult 2020 financial year rose sharply.

If you look back further than just the Corona year 2020, then the Dax companies in the past distributed between 30 and 60 percent of their net profit to their shareholders. Exceptions were the crisis years 2008 and 2009, in which significantly more went to investors.

Dividends bring investors dream returns

In the coming spring, when the vast majority of companies will transfer their dividends to their shareholders, the dividend ratio, which has risen sharply this year, is likely to drop drastically again. Analysts are currently forecasting an average total net profit of around 105 billion euros for the Dax companies. Of this, between 35 and 40 billion euros should flow into the accounts of investors.

“Thanks to rapidly recovering profits and decreasing economic uncertainty, companies are paying out more dividends again,” predicts Ulrich Stephan, Deutsche Bank’s chief investment strategist. A move away from steadily increasing dividends in good profit years is not in sight, despite the high investment requirements. Dividends are far too important when it comes to long-term growth in earnings: Anyone who bought shares in all Dax companies when the Dax was introduced in 1988 and kept them to this day, made a profit of around 1,500 percent. Since then, only a good third, 570 percent, has resulted from actual price increases – the rest of the amount from annual dividends alone. Most shareholders will probably not want to do without this in the future either.

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