The Importance of Dividends for Stock Returns: An Analysis by Goldman Sachs
Goldman Sachs predicts that dividends will play an increasingly important role in stock returns in the future. This assessment is shared by Katherine Bordlemay, Co-Head of Fundamental Equity Client Portfolio Management at Goldman Sachs Asset Management. She emphasizes that in a time of structurally lower stock returns, dividends could become a driving force for investors’ returns.
Reasons for the Increasing Importance of Dividends
- Structurally Lower Stock Returns: In a phase where corporate earnings growth rates may decline, dividends become an important part of the total return. This is because the growth of stock prices may be constrained by lower earnings increases.
- International Markets: In developed markets outside the U.S., such as Europe, dividends traditionally play a larger role. The MSCI EAFE Index, which tracks large and mid-sized companies in these markets, shows that dividends accounted for about 73 percent of total returns over the last two decades.
- Sustainable Dividends: Investors should not solely rely on high dividend yields, but rather focus on companies with sustainable dividends that are based on solid corporate fundamentals. This ensures a stable income source for private investors.
Examples of Dividend-Paying Companies
- SAP and Munich Re: These companies are consistent dividend payers and provide investors with a stable income source.
- Sanofi: Sanofi has continuously increased dividends over the last 30 years and offers a dividend yield of about 4.26 percent. This makes it an attractive option for investors who rely on stable income sources.
Conclusion
In a time of increasing uncertainty and potentially lower stock returns, dividends are gaining importance. They provide investors with a stable source of income and may play a crucial role in generating returns in the future. Private investors should focus on companies with sustainable dividends to optimize their returns.