Paying dividends

Dünya Executive - - COMMENTARY - Levent ALKAN Columnist

Are dividends a good option for investors looking at Borsa Istanbul when the joint performanc­e of its BIST-100 stock index is considered? In the 1990s, the Istanbul Stock Exchange, as it was then called, was unable to offer a diversity of products that could compete with its global peers. Since the 2000s, the BIST-100 includes many stocks, and even sectors, that pay dividends regularly. Among them are companies on the BIST Temettü (“Dividend”) 25 Index, which consists of 25 of the highest dividend yield stocks, giving investors profitable returns.

In order to define the limits of dividend effectiven­ess in the stock market, it is worth comparing the relative performanc­e of the Temettü 25 and the BIST-100 over the past six years. If the index is bullish, the joint performanc­e of the Temettü 25 and BIST-100 is weak, as was the case in 2012, 2014 and 2017. Conversely, the joint performanc­e of the Temettü 25 and BIST-100 was strong during the bear years for the in- dex in 2011, 2013, 2015 and 2016. BIST Temettü (“Dividend”) 25 Index always stayed above the BIST-100 index. It is worth pointing out that stocks included in the Temettü 25 can be effective in any month between January and December.

The dividend policies of the 1990s were marked by hyperinfla­tion and gave way to the issue of capitaliza­tion. Inflation encouraged enterprise­s not to pay dividends, as far as it increased the gap between net equity capital and gross equity capital. The period from 2011 until now has been an environmen­t of relatively low inflation and is more conducive for the payment of cash dividends.

And with these years of modest inflation, the joint performanc­e of the Temettü 25 and BIST-100 has also risen to similar levels as their global peers. Prefer dividend stocks on the BIST-100 in a bullish period and while inflation is under control. But if there is a sales wind in the markets, watch closely. That can be a huge opportunit­y for dividend stocks.

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