If at first sight, 2016 seems to be a disappointing vintage for the Paris Bourse, a finer analysis reveals a much brighter year.
When looking at the different review articles about 2016, one clearly understands that the Paris stock market grew only by 4.86%. For most commentators, this is a modest performance, compared with 2015 when the increase was of 8.53%.
However, this rather negative tone of articles published on this subject is a surprise to me.
First of all, because 2016 was marked by huge surprises like the Brexit or the Trump victory. Financial markets generally do not like surprises of this type, as they increase uncertainty.
Secondly because I have listed three reasons to see 2016 as a good vintage. Curiously these three reasons are absent from current stock exchange reviews.
Dividends are up !
The first reason to celebrate 2016 is that the dividends distributed by the CAC40 companies are on the rise. With dividends of 3.84%, 2016 is clearly a good year compared to the 3.15% of 2015, the 3.27% of 2014 and the 3.59% of 2013.
Without reaching the 4.46% record level of 2012, the dividends of 2016 show a good performance. 2016 ranks even at the sixth place of the best performances for dividends on all the history of the CAC40 (after 2012, 2009, 2011, 2008 and 2010). This is a sign that the CAC40 companies are paying more to their shareholders. The financial health of the blue ships of the Paris stock exchange allows them to share, with savers invested in equities, part of their profits.
Additional Performance !
The second reason to positively assess 2016 is that this dividend distribution represents an additional performance for investors.
On a pure price analysis (of 4.86%), dividend effect of 3.84% has to be added.
In total, when price and dividend effect are taken into account, investors in CAC40 shares have seen their savings increase by 8.88%. Yes, you read properly: 8.88% in total on 2016 and not the 8.70% given by the simple addition of percentages (4.86% + 3.84%). Those who are uncomfortable with these percentage calculations can be convinced simply by observing the CAC40 TR (Total return index taking into account the dividends). This CAC40 TR index rose from 11,025.95 points at the end of 2015 to 12,005.34 points at the end of 2016, an increase of 8.88%. This performance is down compared to 2015 (11.94% dividends reinvested for the CAC40), but this is far from being a bad year !
Beautiful year for SMEs !
The third and final reason is that small and medium-sized companies have once again signed a great year.
Beyond the CAC40 shares, we can find on the Paris stock exchange small and mid cap stocks within the CAC MID60 and CAC Small indices.
These indices are less followed than the CAC40, but in our current times of uncertainties the companies that compose them being more agile show good progress. The CAC MID60 shows an increase of 6.72% over 2016 and when dividends are included, performance increases to 9.54%. For CAC Small, the figures are 9.91% and 11.94% respectively.
As for the CAC40, these figures are down from 2015, but we now have double-digit increases, which should give the wise observer a smiling face when looking at a yearly statement. In 2016, diversification outside the CAC40 payed off once again.
Patience is a virtue.
In conclusion, we can only recall this golden rule of equity investment: in the long run, dividends represent a substantial share of performance. As long as one can be patient and can bear psychologically the variations of the stock prices, it is the dividends that help one investor build a fine stock portfolio.
This paper was originally published in French on Le Cercle Les Echos