For investment decisions, private investors increasingly trust in annual reports - shares are an 'investor's favorite'
How do German private investors get their information and what kind of information is it? What do German private investors today think is important for their investments? What's the difference between their preferences and those of institutional investors? For the third time now Deutsches Aktieninstitut, together with the University of Bochum and Deutsche Post DHL, has surveyed investors about these issues. Their study uncovered the following: when making investment decisions, private investors trust more in direct company information, whereas advice from banks and brokers is losing in significance. Furthermore, dividends for private and institutional investors are gaining in importance whilst voting rights are fading into the background.
"The study demonstrates that companies experience significant gains in credibility when information is transparent and reliable."
Stocks should be hotter than ever right now. In the current interest rate environment, which has remained low for some time now, they are one of the few investment options that generate a positive net yield but private investors in Germany are still hesitant. In 2013, Deutsches Aktieninstitut (DAI) counted only five million shareholders in this country. That is admittedly over two million more than in 2008 when the financial crisis was at its height; nevertheless only some 7.5% of German citizens hold shares in portfolios. For comparison: in the USA, one out of two people are stockholders.
In order to investigate amongst other things the reasons for the low shareholder rate in Germany in greater detail, Ruhr University Bochum, with the support of Deutsche Post DHL - one of the largest public companies in Germany - surveyed the investors of the world's leading postal and logistics Group in the spring of 2013. It was the third time the survey has been conducted, after the surveys of 2004 and 2008. In the representative study, about 46,000 private and institutional investors offered general insights into their approach to sourcing information, their preferences in relation to dividends and the significance of voting rights.
"One of the declared goals of our Strategy 2015 is for the group to be the investment of choice. To achieve this objective, we have not only continuously improved our profitability but have also constantly focused on the interests of our more than 400,000 shareholders," said Larry Rosen, CFO of Deutsche Post DHL, at the presentation of the study in Frankfurt. "The study of the retail investors' general preferences and attitudes will also help us to better live up to our commitment and better meet the expectations of our own shareholders in the future."
The media remain the most important source of information for private investors
According to the shareholder survey, private investors obtain their information primarily from business media before they make an investment decision. These channels of information continue to be rated by private investors as the most up-to-date, comprehensible and trustworthy sources. To date, social media such as Twitter and Facebook has played a lesser role for investors hungry for information. However researchers expect the importance of social media to change for shareholders within a generation.
Obtaining information directly from companies is gaining significantly in relevance for investment decisions. In terms of credibility, annual reports, interim reports and corporate responsibility reports have outstripped the advice provided by banks, savings bank and brokers. Martin Ziegenbalg, Head of Investor Relations at Deutsche Post DHL, had this to say: "The study demonstrates that companies experience significant gains in credibility when information is transparent and reliable. That means our efforts to make our reports clear and comprehensible are paying off. Consistent, transparent information policies and good corporate governance are the basis for the dialogue with investors."
Direct dialogue is even more important for institutional investors: a direct exchange of information with management plays the greatest role for these investors, ahead of the quarterly report, direct investors relations contact and the annual report.
A good dividend policy is growing in significance
A direct comparison with the 2008 DAI study shows that dividends play a substantially greater role in investment decisions today than they did five years ago. That holds true for both private and institutional investors. Whilst the former's decisions depend more upon dividend changes than on changes to income and cash flow, changes in the cash flow are most important to institutional investors. In addition, they still decide in favour of a company only if they are impressed first and foremost by the managerial quality and the earnings situation as well as by the corporate strategy.
Even if an absolute majority of those surveyed continue to prefer a more balanced relation between dividends and price increases, both types of investors display a strong bias in favour of dividends. However, private investors evince a preference for dividends than institutional ones. The cause of this increase, according to the authors of the study, is on the one hand a capital market environment that remains volatile. It is precisely this type of environment that enables a sustainable dividend policy to compensate potential price losses and ensure a lasting return on investment for investors. On the other hand, the current interest rate environment ensures an interest in shares. According to the study, the absolute and relative gain in significance can be explained by that fact that dividends are often orientated towards longer-term earnings trends expected by management.
For Larry Rosen, Deutsche Post DHL CFO, that is a confirmation: "Reliable dividends are an important factor when it comes to building long term trust in the shares of companies. The same goes for Deutsche Post DHL. That is why a consistent dividend policy with a clearly set dividend pay-out ratio of 40% to 60% of consolidated net profit is also a central component of our finance strategy."
Voting rights important for institutional investors
Shareholder voting rights and their exercise have seen a notable loss in significance for private investors over the last five years. Nearly 40 percent of all private investors surveyed do not intend to exercise their voting rights themselves or to transfer them to a proxy. That is not true for institutional investors; in fact the opposite is true. All institutional investors decide for themselves how they want to exercise their voting rights. Accordingly, significantly fewer institutional investors than private investors would be prepared to acquire shares without voting rights.
The fears of small investors, that majority shareholders and banks in particular would be able to enrich themselves at their expense, have increased considerably whereas these fears have diminished for institutional investors. Both private as well as institutional investors share a critical view of the influence of majority shareholders.
The results of the study show that the decision to invest in a share depends primarily on trust in the company. Comprehensible communication with the capital market and the media, transparent investor relations work, reader-friendly financial reports and last but not least, a reliable dividend policy are factors for ensuring the long-term trust of private and institutional investors.