Mercedes-Benz and VW: Quickly get a dividend yield of more than 7%

Dividend season for German companies will start in a few weeks. Automakers Mercedes-Benz and Volkswagen have traditionally been among the most generous payers. Neither company will make any further distributions from the DAX this year. What investors should know about the two companies’ top dividends.

German automakers didn’t have it easy last year. The economy in this country was stagnant, and growth in the world also slowed down. In addition to geographic and political conflicts, supply constraints hampered production.

However, Mercedes-Benz has made a good profit from the increase in the prices of its cars. Shareholders will share in the company’s success through dividends that have increased by 1.9 percent. The Stuttgart group will pay a dividend of 5.30 euros per share for 2023. Last year the payment was 5.20 euros. The Annual General Meeting, which will meet approximately on May 8, has yet to formally approve this proposal from the Board of Directors; but this is just a procedure.

Good dividend yield of seven percent

Anyone who owns Mercedes shares on the day of the AGM, i.e. in four and a half weeks, will benefit from the dividend. On May 9th the stock will be sold for the initial dividend and on May 14th it will be paid to deposit accounts.

According to Xetra’s closing price of Mercedes-Benz shares last Friday (05.04.24) at 74.71 euros, this results in a high dividend yield of around 7.1 percent – the highest value among DAX companies. Only for Volkswagen (see below) is there a higher percentage share for preferred shares.

New distribution policy

In total, the company paid out about five billion euros in dividends for the last financial year. The year 2024 could be a transition year for all German car manufacturers, perhaps only at the level of the previous year. However, Mercedes wants its shareholders to share in more profits in the future.

In the future, not only about 40 percent of the net profit will be distributed as dividends, as it is now. If the cash inflow (free cash flow) generated by the industrial business during the year – i.e. excluding financial services – exceeds this, this extra money should be regularly invested in stock purchases.

Mercedes CFO Harald Wilhelm justified the deal with the intention of continuing to increase earnings per share and dividends. The company had already decided to buy back the company for up to four billion euros last year. The deal is scheduled to be completed in the third quarter, after which new share purchases worth up to three billion euros will begin.

New price records ahead

Shares of Mercedes-Benz have continued to rise in recent weeks. It recently reached its highest level since June 2023 at around 75 euros The all-time high of 77.90 euros from February 2022 is not far away.

Uptrend intact

However, the preferred shares of Volkswagen still have a long way to go until they reach the maximum level of the 250 euro mark. On Friday, VW closed Xetra at 126.40 euros. The stock price has also been in an upward trend since the last fall. Unlike Mercedes-Benz, however, the Wolfsburg-based group is struggling with costly restructuring. Software problems have been slowing down delivery in several areas for months. There are also concerns about sales in China.

VW’s premiums rise faster than profits

However, the Volkswagen Group was able to slightly increase its operating results last year. Because, among other things, and the high costs of obtaining raw materials, profits in 2023 only rose by a good two percent to 22.6 billion euros. As expected, the group’s operating margin fell from 8.1 percent to 7.0 percent. However, free cash flow rose significantly beyond analysts’ consensus expectations from 4.8 billion euros a year earlier to more than 10.7 billion euros.

The group now wants to pay an increased dividend of 9.06 euros per preferred share. Compared to the previous year, when EUR 8.76 per share was paid, the dividend is growing by 3.4 percent. The general meeting on May 29, 2024 is most likely to approve the dividend proposal. VW will be selling the initial dividend on May 30 and the payment day will be June 3.

Based on the closing price on Friday at 126.40 euros, VW’s preferred stock has a dividend yield of 7.16 percent.

attitude

For Volkswagen, 2024 will be another year of change, which may be characterized by high investment spending. Investment billions will also reduce future free cash flow. The 10.7 billion euros that were available in 2023 will now probably be between seven billion euros.

However, for CEO Oliver Blume, the cleanup job at the group is over for the time being. However, speed improvements are not expected until 2025, as the group’s restructuring course still needs to be set this year. For this year 2024, dividends may grow only slightly, if at all.