Sustainable Swiss dividends

Overall, Swiss companies are doing well financially. Their average net indebtedness (net debt-to-EBITDA ratio) has been moderate and relatively stable in recent years, and is estimated to be in line with long-term levels this year. Moreover, Swiss companies are reporting robust profitability that is at the upper end of the historical range, according to a research paper from the Chief Investment Office of UBS Global Wealth Management. Despite the significant price increase in the Swiss stock market over the past ten years, the dividend yield has remained at a stable and attractive level. This clearly underlines that not only profits of Swiss companies, but also their dividends have been able to grow continuously. Further, it is important to mention the fact that based on historical evidence, dividends are a substantial part of total equity returns.

SPI excluding and including dividends over 20 years, 1 January 2003 = 100

Source: Refinitiv, UBS, as of 3 April 2023

Over the past 20 years, the Swiss Performance Index (SPI) has appreciated more than 300% when dividend payments are included, but only approx. 130% when excluded. In other words, dividends represented more than half of total shareholder returns.

Dividends exhibit defensive characteristics; their volatility is much lower than corporate earnings. For example, during the global financial crisis in 2008, total net profits of all companies in the Swiss Market Index tumbled 68% in Swiss franc terms; but accumulated dividends fell just 22%, reflecting, in our view, many companies' preference to pay relatively steady cash returns to their shareholders. Dividends tend to be stable because, on average, they only pay out half of their profits to shareholders.

With the new UBS ETF MSCI Switzerland IMI Dividend ESG, investors can use the return potential of high-dividend Swiss equities in an efficient way and at the same time invest sustainably.