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Madrid 2,228 EUR 0,03 (+1,55 %)

ECONOMY| 02.15.2024

Dividends, the “darling” of the Spanish stock exchange

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Wall Street is one of the favorite trading floors for investors around the globe, as it’s where household names, including Alphabet, Netflix, and Microsoft are listed. However, few people are aware that what American equity giants, such as Amazon, are lacking, Spain is abundant in: dividends. In fact, the one thing that the Spanish stock exchange can boast is that it’s one of the few stock exchanges in the world that’s a veritable jewel for dividend hunters. The Spanish market, as well as others like Australia, is known in the financial industry for the payments it rewards its shareholders with.

Dividends are part of the company’s profits that the company in question then pays to its shareholders in the form of remuneration. A type of incentive to attract investors as well as retain their loyalty. Collecting dividends is a way of making an investment in equity profitable. The other is waiting for the market value of shares to go up.

Historic highs on the Spanish stock exchange thanks to dividends

Many headlines in Spain are currently focusing on how on the other side of the Atlantic, the stock exchanges and companies listed on Wall Street are beating all-time high after all-time high. However, there’s another stock exchange that’s also at an all-time high: the Ibex Total Return, the “version” of the Ibex that includes dividends.

This selective index includes dividends when calculating the index’s value. Spain is one of the European countries that distributes the most dividends, which is why when dividends are included in the Ibex, their value skyrockets.

The Spanish stock market distributed 27.44 billion euros in dividends in 2023 through November, 18.8% up on the same period of the previous year, according to the BME 2023 market report. In relative terms: the Ibex dividend yield stood at 4.1% at the end of October 2023. That means that on average, each Spanish share gave a dividend equivalent to 4% of the price of that share. In other words: each year, the shareholder will generate a 4% return through the collection of dividends.

Dividend yield is one of the metrics most used by experts in the finance industry to compare companies with one another. Staying with the Wall Street comparison, it’s worth noting that companies like Amazon don’t distribute any dividends, and others, like Apple, have a dividend yield of 0.5%. Meanwhile the dividend yield of Spanish companies is higher: MAPFRE’s stands at 7.7%.

The insurance company is one of the Spanish companies that offers the best dividend yield. Fernando Mata, the company’s Chief Finance Officer, has always emphasized MAPFRE’s commitment to shareholder remuneration. In fact, back in 2022, the executive said that 4.2 billion euros had been distributed in dividends up until that point, always in cash, which was equivalent to 80% of MAPFRE’s market capitalization at that time.

This year, the insurance company has decided to increase the dividend per share to 15 cents, compared to the 14.5 cents distributed in recent years. Thus, the total amount charged in 2023 came to 462 million euros.

Keys for investing in dividends

In the dividend investment universe, there are dozens of concepts you need to get your head round to make the best selection. In addition to the dividend yield, the first thing an investor needs to do is understand what exactly the dividend is. The dividend is the way a company remunerates its shareholders, and the amount of that remuneration is based on the company’s profits. But are all a company’s profits distributed among its shareholders as a dividend? The answer is “Not always.”

Herein lies the concept of the “payout,” which is the percentage of a company’s profits that it decides to distribute among its shareholders. Companies like MAPFRE consider the stability of the payout as one of their main commitments to investors. In the case of the insurance company, this payout has fluctuated between 60% and over 80% in recent years.

Dividends distributed by a company can take two forms: cash or a scrip dividend. Cash is the simplest format and, therefore, one of the most coveted by investors. Here, the company distributes the dividend in the form of a cash payment to its shareholders, and this is the method chosen by MAPFRE.

In turn, “scrip dividends” are unique, as instead of making this payment in cash, the company gives its shareholders a number of shares, whose value is equivalent to the dividend to be received.

Another key factor when it comes to investing in dividends is knowing when the investor’s right to receive that remuneration begins and when it ends. There are two key dates: the ex-date or ex-dividend date and the record date.

The most important of the two is the “ex-date” or “ex-dividend”: this is the day on which the share in question starts trading without the right to collect the dividend. If an investor purchases a share on the ex-date, they will not be entitled to that remuneration. With this in mind, savers looking to collect a dividend must purchase the share in question before the ex-date.

This date is established based on another date that is also important: the record date, which is the date that the company chooses to register all shareholders who will receive the dividend. Typically, the ex-date is set one business day before the record date.

In short, the dividend universe is as appealing as it is complex, which is why it’s vitally important that investors understand concepts such as payout and stability, dividend yield or the format in which this payment is made (cash or scrip dividend).