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Looking at the long-term impact of dividends reveals exciting developments. Over the past 25 years, reinvested earnings distributions accounted for around two-thirds of SPI®’s total return. This impressively illustrates the vital importance of dividends for long-term asset accumulation.

Although the Swiss stock market rose significantly over the past quarter century, distributions were able to keep pace, which meant the dividend yield remained steady at an average of 3 percent. This underscores the fact that Swiss companies have been able to increase their distributions over the same period thanks to their high competitiveness and stable financial position.

With their regular income streams, dividend securities can help cushion losses during bear periods. What is more, they typically bring a certain degree of stability to the portfolio as they tend to be less volatile.

After the interest rate cut cycle, initiated by the Swiss National Bank in 2024, high-quality dividend securities are once again gaining popularity and are coming into focus among investors on account of their increasing attractiveness to fixed-income investments. Consensus estimates for the growth of dividend distributions by Swiss companies in 2025 are currently around 4.8 percent, implying a new record level.¹

A successful dividend strategy combines a look into the past with forward-looking factors. A long history of continuously rising dividend payments can be regarded as an indication of a stable company with a healthy balance sheet and stable cash flow.

Another selection criterion is the payout ratio, this measuring the proportion of profits generated and passed on to shareholders. In order to enable future investment and thus growth, the dividend paid should be in a healthy proportion to the profit generated. This ensures that distributions are neither maximized in the short term nor come at the expense of investments that secure future growth.

The important basic principle behind diversification also applies when it comes to building up a dividend portfolio. Attractive dividend payers are often concentrated in specific sectors, even though this can lead to unwanted lump risks in the portfolio context. To prevent such a scenario, broad diversification across various sectors, both defensive and cyclical, is recommended, as well as an active investment approach.

The Swiss equity market is dominated by heavyweights such as Nestlé, Novartis, and Roche. Although these are considered attractive dividend payers, they carry concentration risks due to their index weighting. Such risks can be countered with active selection and the setting of maximum position weights. This makes it possible to exploit attractive opportunities in emerging dividend opportunities with lower market capitalization.

Besides the attractive dividend income, investors with a primary focus on income distribution are also opening up a second interesting income component. By prescribing covered call options (covered call overlay) to individual stocks in the portfolio, it generates additional income streams in the form of option premiums. As a rule, these are distributed to investors once a year together with the dividends earned. For investors domiciled in Switzerland, the distribution share of the option premiums (gray bar) is even tax-free.

Indicative current equity yield (dividend yield + call overlay yield).

Past performance is no guarantee of future performance.
Source: ÃÛ¶¹ÊÓƵ Asset Management Switzerland AG, as at end of January 2025
For illustrative purposes only. Past performance is no guarantee of future performance. This does not constitute a guarantee on the part of ÃÛ¶¹ÊÓƵ AG, Asset Management.

This indicative ongoing share return is non binding and is understood to be net of fund fees. The share yield is the sum of dividend distributions and premiums from the sale of call options. The dividend yield is based on the dividends of the last 12 months, less with holding tax. The option premiums are based on the annualized sum of the option premiums received in the last 12 months. The final return on equity may differ significantly from the indicative return. This does not constitute a guarantee by ÃÛ¶¹ÊÓƵ AG, Asset Management. The distribution yield depends on the share class and may differ from the indicative yield. The distribution yield may include both capital and income. Depending on the jurisdiction, investors may be subject to a higher tax rate on distributed capital. Investors should seek their own tax advice.

Whether with or without a covered call overlay, a high-quality Swiss dividend portfolio with a focus on companies demonstrating above-average dividend yields, with stable forecasts or sustainably rising forecasts, thanks to a strong balance sheet and solid business model, has proven useful as a portfolio building block in the past.

¹ This does not constitute a guarantee by ÃÛ¶¹ÊÓƵ Asset Management.