Investment Compass
Investment Compass gives an insight into the investment decisions of our specialists.
Investment compass - June 2010
Editorial
The problems around high debt levels in some euro zone countries and the fear about a renewed fall back into recession are likely to keep investors alert in coming months. We do not expect equity prices to change much, but volatility is likely to remain elevated. However, second quarter corporate earnings, which will be published in the next weeks, could support the markets.
Equities with elevated dividend yields offer attractive investment opportunities, which need to be examined carefully, especially in light of the record low capital market interest rates. The dividend accounts for about 50 percent of the total return of a share in the long term. In addition, such stocks, which can be found above all in the sectors utilities, telecom, pharmaceuticals or consumer staples, usually prove to be quite resilient in difficult markets.
Investment Overview
After they did extraordinary well in 2009, international equity markets have consolidated so far in 2010. Equity prices fell sharply in May, but managed to stabilize once again at the beginning of June. China’s announcement to let its currency fluctuate should have a positive impact on the global economy in the longer term.
Investment Overview 
Dividends - An underestimated factor of success
More often than not, the importance of dividends gets underestimated. For investors, payouts of corporations to their shareholders are not only a relatively stable source of return, but also contribute a large part to the total return of shares. Long-term analyses show that stocks of companies that pay dividends perform better than stocks of non-dividend payers. But the dividend should never be the sole reason to purchase a particular stock; other fundamental data such as corporate earnings growth or quality of the balance sheet need to be taken into consideration, too. An unusually high dividend yield may indicate problems with a company.
In the current market environment, equities of companies with high cash flows and stable or even slightly rising payout ratios are very attractive. The average dividend yield in euro land is about double the yield of first-class long-term government bonds. But also American and Asian dividend yields are at historically high levels when compared to the national capital market interest rates. Stocks from defensive sectors such as pharmaceuticals or consumer staples often carry relatively high dividend yields.
Dividends