Dividends: almost half the battle
The corporate reporting season starts in January and lasts until March. Nestlé, for example, released its 2025 figures yesterday. Investors are primarily interested in revenue, profit and, most immediately, dividends.
The fact that most companies mention the planned dividend payment right at the beginning of their announcement shows how important it is. Shareholders want to share in the profits through dividends. Anyone who thinks these amounts are negligible should definitely read on.
The cut-off date is important
The basic principle of dividends is as follows: a company makes a profit in a given year. Part of this profit is distributed to the owners, i.e. the shareholders. The shareholders determine how much money is distributed. At the annual general meeting (AGM), which takes place between March and May in Switzerland, the shareholders approve the amount proposed by the board of directors.
Immediately after the AGM, the agreed amount per share is paid out to all shareholders. Therefore, the shares must be in the securities account on a specific date around the AGM; otherwise, there will be no payment. Therefore, anyone who bought Swisscom shares in June and sold them in December will not receive anything; only the cut-off date counts. On the day the dividend is paid out, the share is listed 'ex-dividend'. The price then falls by the amount of the dividend.
That concludes the accounting side of things. The importance of dividends for investors is often underestimated. When it comes to earning money with shares, there are only two components: price changes and dividends. Long-term studies show that investors earn an average of around 7 per cent per year with stocks. Currently, all dividends in the Swiss stock market (as measured by the SPI index) amount to just under 3 percent. Simply put, dividends account for almost half of the total return on stocks, so they are a significant source of income for investors.
It is crucial for long-term savers to reinvest dividends promptly.
Clifford Padevit Clifford Padevit, Head of Investment Communication
Differences compared to the US
The contribution to stock returns varies around the world. In Europe, it is roughly equivalent to that in Switzerland. In the US, however, it is less than a third. US companies pay lower dividends to their shareholders, and historically, stock price gains in the US have been higher than in Europe.
Dividends are less stable than bond interest rates. They are set each year and may be suspended if the company makes only a small profit, or even a loss. Nevertheless, we compare them with income from bonds, and in Switzerland, where interest rates are low, dividends offer a significantly higher return. Investors must, however, be prepared to tolerate greater price fluctuations.
It is crucial for long-term savers to reinvest dividends promptly. This is because the interest yielded by the account is far less than that yielded by an investment in stocks. This is the only way to achieve the compound interest effect. Anyone investing in stocks via funds should take this into account when making their selection. Stock funds usually have the suffix 'acc' or 'dis' in their name. 'Acc' stands for funds that reinvest distributions (also known as accumulating funds).
Dividends are therefore very important for stock investors. Long-term savers would be unwise to disregard or downplay them.
Legal notice: You can find the legally required information on financial analyses at https://www.vpbank.com/en/legal-notice.
