Dividend Stocks in Switz­er­land: What Investors Should Look for When Choosing Them

Are dividend stocks in Switz­er­land still attrac­tive despite higher interest rates?

Dividend-paying stocks remain attrac­tive in Switz­er­land even in the current interest rate environ­ment, especi­ally for investors seeking regular income and some protec­tion against infla­tion. Thanks to Switzerland’s tradi­tio­nally stable economy and the strong balance sheets of many compa­nies, they continue to offer solid returns that compare favor­ably on an inter­na­tional scale.

The true added value of a dividend portfolio comes from:

• the quality of the compa­nies
• the long-term reinvest­ment of earnings (compound interest effect)

Compa­nies with a stable dividend policy are also subject to a certain degree of capital disci­pline, which can help prevent undesi­rable develo­p­ments.

Other benefits include:

• Often more resilient price perfor­mance during periods of market volati­lity
• Predic­table Income for Investors
• An Attrac­tive Alter­na­tive During Periods of Low Interest Rates

What risks should investors be aware of when investing in dividend-paying stocks?

Investors should delibera­tely avoid excep­tio­nally high dividend yields, as they often serve as a warning sign of poten­tial cuts. It is also important to ensure that the dividend payout ratio relative to earnings is not overly generous. What matters most, there­fore, is not the amount but the reliability—and thus the sustainability—of the dividend. Conse­quently, only compa­nies with a stable and consi­stent dividend policy should be considered.

For a successful dividend portfolio, compa­nies in sectors that have stable cash flows, high earnings visibi­lity, and limited capital requi­re­ments are parti­cu­larly attrac­tive. Typical sectors include health­care, telecom­mu­ni­ca­tions, insurance, utili­ties, consumer staples, and infras­truc­ture. Less suitable are sectors with highly volatile earnings, high invest­ment requi­re­ments, or a low willing­ness to pay dividends. These include sectors such as techno­logy and cyclical industries.

How are dividends taxed in Switz­er­land?

In Switz­er­land, dividends are subject to ordinary income tax as invest­ment income. In addition, a 35% withhol­ding tax is deducted directly from the gross income at the federal level; however, this tax can be fully reclaimed if correctly reported on the tax return.

Dividend Stocks or Dividend Funds? Which Is the Better Choice?

There is no one-size-fits-all answer, as the “better” choice depends prima­rily on your risk tolerance, invest­ment horizon, and the amount of time you’re willing to devote to it. Investing in indivi­dual dividend stocks is suitable for experi­enced and larger investors who want to build a custo­mized portfolio, have suffi­cient time to devote to it, and possess in-depth market knowledge. Dividend funds (or ETFs) are ideal for straight­for­ward, broadly diver­si­fied wealth accumu­la­tion, but they tend to have higher fees.

How do we at Tareno handle the dividend portfolio for our clients?

The Tareno dividend portfolio is guided by clear criteria:
In addition to offering an attrac­tive dividend yield, compa­nies must now pay out at least as much in dividends as they did five years ago. At the same time, the payout ratio must not be too high in order to ensure sustaina­bi­lity.

From this invest­ment universe, the most promi­sing securi­ties are selected using finan­cial analysis and proprie­tary valua­tion models. The goal is to achieve an optimal combi­na­tion of quality and attrac­tive valua­tion.

Which dividend stocks might investors want to take a closer look at right now?

Typical examples in a CHF dividend portfolio include Novartis, Swiss Life, and Swisscom. Not only do these compa­nies offer high dividend yields, but—more importantly—they are able to reliably finance and increase their dividend payments over many years:

• Novartis is one of the world’s leading pharmaceu­tical compa­nies and has a broad portfolio of innova­tive medicines for serious diseases. Demand for effec­tive medicines is largely indepen­dent of economic fluctua­tions, which helps the company generate stable revenue. Thanks to high margins, robust research, and a solid balance sheet, Novartis consist­ently generates high free cash flow. This finan­cial strength forms the founda­tion for an attrac­tive dividend that has been rising for many years.
• Swiss Life benefits from the long-term trend of an aging popula­tion and the growing demand for retire­ment and finan­cial solutions. The company derives an incre­a­sing share of its profits from recur­ring fee income, which is less suscep­tible to fluctua­tions than tradi­tional insurance revenues. Disci­plined capital alloca­tion and strong capital position enable generous distri­bu­tions to share­hol­ders. In recent years, Swiss Life has conti­nuously increased its dividend and also repurchased its own shares.
• As Switzerland’s leading telecom­mu­ni­ca­tions provider, Swisscom enjoys a strong market position and a loyal customer base. Mobile, internet, and TV subscrip­tions generate predic­table and recur­ring revenue. The business is largely unaffected by economic cycles, as telecom­mu­ni­ca­tions is now considered an essen­tial basic need. As a result, Swisscom generates stable cash flows even during diffi­cult economic times and has been able to pay an attrac­tive dividend for years.

Publisher: Tareno AG, Garten­strasse 56, 4052 Basel, Tel. +41 61 282 28 00, info@​tareno.​ch, www.tareno.ch. We welcome feedback on our publi­ca­tion. This content is for infor­ma­tion purposes only. The publi­ca­tion contains neither legal nor invest­ment advice or invest­ment recom­men­da­tions and does not consti­tute an offer or solici­ta­tion to make an invest­ment.

Images / Charts: The charts were created by Tareno AG using its own and publicly available market data.