Top German Dividend Stocks from DAX and MDAX

The dividend season is upon us, and major players in the German stock market are preparing to reward their shareholders with substantial returns. As the Deutsche Telekom prepares to distribute dividends shortly after its annual general meeting on April 9, companies listed on the DAX and MDAX indices are set to disburse approximately EUR60.8 billion in dividends for the previous fiscal year, with a significant portion expected in May. This figure exceeds last year's total of EUR60 billion, alleviating earlier concerns of a potential decline.

Analysts from DZ Bank anticipate that total dividends could rise to EUR64.4 billion in the current year, although this projection does not fully account for the government's investment package. Nevertheless, the rising stock prices have made dividend yields less appealing to investors, with the DAX's yield dropping to 2.5%, compared to a ten-year average of around 3% and a 20-year median of 3.4%. Furthermore, the attractiveness of ten-year government bonds has increased, with yields climbing to 2.7%.

Despite these challenges, dividends continue to play a crucial role in total returns for investors. Over the past decade, the DAX has appreciated by 87%, while the price-only DAX without dividends has seen a growth of just 40%. The MDAX index presents an even starker contrast, showing a 33% appreciation, which falls to a mere 6.5% when excluding dividends.

Among the 40 companies listed in the DAX, 23 are expected to increase their dividends (57.5%), while 10 will maintain their current payouts (25%), and 5 will reduce them (12.5%), with 2 not distributing any dividends (5%). Notably, Siemens, Siemens Healthineers, and Infineon have already declared their dividend payouts in February.

In the MDAX, half of the companies are planning to raise their dividends, although a notable number, particularly younger firms like Auto1, Delivery Hero, and Teamviewer, along with established players such as Fraport and TUI, are opting not to pay dividends at all.

The automotive sector still accounts for a significant share of dividend payouts in both indices, comprising 22.4% of the total, although this represents a decline from over 28% in the previous cycle. Companies like BMW, Mercedes, Porsche, and Volkswagen have faced challenges, with four of the five DAX firms that are cutting dividends belonging to this sector.

Mercedes-Benz has closely met analyst expectations with a proposed dividend of EUR4.30 per share, down from EUR5.30 the previous year. Volkswagen, initially expected to announce a lower dividend, surprised analysts by proposing EUR6.36 per share, although this is still a decrease from EUR9.06. BMW, likewise, has adjusted its dividend proposal to EUR4.30, down from EUR6.00.

On a different note, BASF, not an automotive company, has also announced a significant cut, reducing its dividend by nearly 34%, marking it as the lowest performer in the DAX. The firm set out a target of at least EUR2.25 per share but fell short of this promise amid ongoing restructuring.

In terms of absolute payouts, Allianz leads the pack with a remarkable EUR5.9 billion distributed to shareholders, representing a substantial portion of the total dividends from both DAX and MDAX companies. The firm has consistently increased its dividend over the past twelve years, with an average annual growth rate exceeding 10%, aside from the stable payout during the pandemic year of 2020.

Several other companies are also noteworthy for their high dividend yields. For instance, DHL offers a yield of 4.7% and E.On provides 3.9%. In the MDAX, Deutsche Lufthansa, DWS, Evonik, and Freenet stand out with attractive yields ranging from 4.4% to 5.9%.

It is essential to approach the high dividend yield metric with caution, as it can sometimes indicate underlying issues if stock prices have fallen dramatically. Historically, focusing solely on high dividend yields has not guaranteed positive returns, as evidenced by the DivDAX index's performance.

United Internet is making waves with its substantial planned dividend increase, offering a base payout of EUR0.40 per share alongside a one-time catch-up dividend of EUR1.50 per share to compensate for previous years' reduced dividends.

RTL Group, another prominent name, maintains a high yield of 7.2% but has recently proposed a dividend of EUR2.50 per share, slightly down from EUR2.75 the prior year.

Adidas has also increased its dividend to EUR2.00 per share, although this results in a modest yield of only 0.9%. The company faces challenges that could impact its performance, including tariffs and inflation.

Lastly, companies like Beiersdorf, Henkel, Munich Re, and SAP have gained recognition for their consistent dividend payments over the years, reflecting their stability and reliability in a fluctuating market.