Dividend Deluge in Switzerland's Corporate Elite
Zurich
The Swiss stock exchange serves as a rich asset for individuals.
In the wallets of Swiss corporate shareholders, the sound of cash raindrops has been a familiar symphony for years. Following the latest dividend distribution, the wealth of shareholders in the 30 most valuable companies listed on the Swiss stock exchange swelled by a whopping 46.6 billion Swiss francs. Since 2010, the Börsen-Zeitung has been publishing the annual Dividend Report from Switzerland, and the numbers show that companies have increased their payouts by an average of 4.5% each year over the past 14 years.
Mature companies dish out the dough
Well-seasoned, large corporations with established products, solid market positions, and tested business models are often the largest and most reliable dividend providers. They've surpassed the costly setup and expansion phases, now relishing the benefits of their investments. The Swiss economy is rich in mature companies that often command leading positions in their respective global markets.
Thomas Meier, a fund manager at Mainfirst Asset Manager in Frankfurt, who specializes in investments in dividend-paying stocks, refers to such companies as "dividend titans." His preference for Switzerland as an investment hotspot is well-founded: In 2024, the 30 companies included in the Swiss Leader Index generated a total of nearly 66 billion Swiss francs in profit. They divvied up almost all of this, distributing dividends and share buybacks worth 18.5 billion Swiss francs. While the payout ratio isn't always this high, it has been well above the long-term average since the financial crisis, indicating companies' loss of faith in the general economic development.
Companies invest their profits in state-of-the-art facilities or innovative product development when they can expect substantial demand. But if this potential seems scant, profits are more likely to be returned to shareholders. In the long run, this tactic can stunt growth and erode wealth, as it reduces companies' production potential.
In recent years, Nestlé, Switzerland's long-standing dividend king, has followed this pattern. In December 2024, the food powerhouse completed a share buyback program worth 20 billion Swiss francs, which it initiated in 2022. This was the second program of such magnitude since the financial crisis.
However, shareholders were far from thrilled. With Nestlé no longer enjoying its reputation for consistently posting above-average growth rates in all economic conditions, the company's market capitalization plummeted by 63 billion Swiss francs to 193 billion Swiss francs in 2024—a side effect of the company overpaying for repurchased shares, further devaluing shareholder assets.
Fund Manager Thomas Meier anticipates that the profit growth of companies will significantly decelerate in the face of the worsening global economic climate. He forecasts fewer share buybacks in the near future. Nevertheless, he does not foresee massive dividend cuts. "Companies will strive to maintain or even increase their dividends, even in difficult times," he asserts, acknowledging that the reliability of payouts is a critical factor in shareholder loyalty and a company's stock valuation. Meier is optimistic about banks. "They've been in the financial industry's doghouse for the past 15 years, but they've bounced back now," he says, believing that they will fare better in the next recession due to stricter regulation.
"While it may not be a tragedy for dividend recipients if banks face stricter capital requirements, institutions like UBS will resist such regulations strongly," Meier notes. UBS promises its shareholders consistently growing payouts and further billion-dollar share buybacks, but the extent of these buybacks could be affected by the evolution of regulation in Switzerland.
Since the financial crisis, it's not just shareholders but also managers who've been generously remunerated. The average CEO salary of companies in the Swiss Leader Index has shot up from 4.7 million Swiss francs in 2010 to 6.7 million in 2024. In 2024, Novartis CEO Vasant Narasimhan broke the record with an annual salary of 19.2 million Swiss francs, following a 19% raise. Many large US companies already pay their CEOs more than 20 million dollars a year, but in Europe, the 20-million-mark has thus far been a kind of taboo.
High CEO salaries are more palatable to shareholders when their total return (Shareholder Value, consisting of market value and payouts) is also positive. However, in the case of Novartis, the Shareholder Value decreased by 2% in 2024, which doesn't support Narasimhan's compensation package. If the 2023 spin-off of Sandoz were not considered a cash dividend, Novartis would have achieved an increase in Shareholder Value.
In 2024, SGS CEO Géraldine Picaud's salary increased significantly more than the company's Shareholder Value. Only just enough for an increase in shareholder value was achieved by the private equity specialist Partners Group, whose CEO David Layton still became the second-highest paid manager in Switzerland behind Narasimhan with a 141% increase in salary.
For mutual satisfaction, the flavor manufacturer Givaudan ensured in 2024 that the CEO received a 6% salary increase while simultaneously improving the shareholder value by 13%. However, the principle of equal development of wages and performance is often violated when performance declines. Executive salaries are also often inflexible when it comes to downward adjustment, despite typically having a high performance component. Nick Hayek of the Swatch Group and Urs Gantner of the VAT Group, specialized in the production of vacuum valves in St. Gallen, are notable exceptions in this regard. What will happen to executive salaries when the stock market trend turns negative remains to be seen.
"While it may not be a catastrophe for dividend recipients if banks have to comply with conservative capital requirements, institutions like UBS will push back hard against such regulations," Meier says. UBS promises its shareholders consistently increasing payouts and further billion-dollar share buybacks, but it may have to exercise more restraint in its buybacks contingent upon the development of regulation in Switzerland.
In the Swiss stock market, "dividend titans" hold sway. Numerous long-established large corporations continue delighting their shareholders with generous payouts annually, while managers reap the benefits. However, this annual celebration of wealth distribution may not continue indefinitely.
- The Swiss economy, rich in mature companies that often command leading positions in their respective global markets, is a hotspot for fund managers who specialize in investments in dividend-paying stocks, like Thomas Meier from Mainfirst Asset Manager in Frankfurt.
- Technology and lifestyle sectors, although not heavily emphasized in the article, could potentially see increased dividends from these "dividend titans," as they strive to maintain or even increase their dividends, even in difficult times, acknowledging that the reliability of payouts is a critical factor in shareholder loyalty and a company's stock valuation.
