Member of the managing board of Raiffeisen Vermögensverwaltungsbank AG
Due to the debt crisis, many wealthy investors have focused strongly on precious metals, real estate and foreign currencies, such as the Swiss franc, or simply prefer to put their assets into savings. Due to the intense volatility on the equity markets, it is easy to lose sight of the importance of portfolio diversification.
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Dividend-bearing securities offer an attractive niche
Following the dramatic rise of the equity markets in 2009, which also boosted investor confidence, the markets returned to their senses at the beginning of the current year, when doubts began to arise as to the sustainability of the economic upswing and the enormous budget deficits in some countries took the limelight. This debate has calmed down somewhat in recent weeks, but a degree of uncertainty remains – coupled with the fact that market conditions appear to be extremely challenging in 2010.
So investors are faced with the task of finding niches if they want to participate in the economic recovery – and at the same time limiting risk so that they are not too deeply affected by unavoidable setbacks. One such niche is dividend-bearing securities. The outlook for high-quality dividend-bearing securities is considerably better than is generally perceived at the moment. Because in general, equities are no longer as cheap, per se, as they were before the rise of the markets in 2009. Corporate bonds, on the other hand, remain attractive, but not all investors are willing to accept the risk of another recession, which would have a particularly strong impact on this asset class. The only thing left is government bonds; although – as already mentioned – we have seen in recent weeks that these no longer offer a completely safe haven.
Dividend-bearing securities from large companies operating internationally are therefore worth consideration: They allow investors to profit from the growth of the emerging markets as well as from the security of a large company that is able to generate a healthy, stable cash flow. The period following a recession, when the economy is gaining momentum again, is generally considered an attractive time for securities with strong dividends. And at the moment, after the vehement cost-cutting measures implemented last year, many companies are sitting on large cash reserves and have no compelling reason to invest. All of these factors point to a positive outlook for dividend stocks and their growth rate.
However, concentrating solely on the companies with the highest dividend yields might be the wrong approach: High dividends could be the result of sinking share prices, for instance, and may therefore have nothing to do with the solidity of the company. Instead, it is recommendable to turn to investment funds that are focused on the selection of dividend-paying companies. These funds vary considerably when it comes to their focus on regions and sectors, which creates additional opportunities for experts to optimise investments.
In general, dividend-bearing securities currently offer attractive investment opportunities. With the proper investment strategy, they provide an extremely favourable risk/return ratio.