Assessing the ‘best’ dividend stocks in Switzerland: what you need to know

Dividend stocks are a popular choice for many Swiss investors as a portfolio addition. The reasons are clear: on one hand, dividends provide an additional source of return through regular payouts. On the other, historical analyses highlight the impressive power of compound interest when dividends are reinvested. Since 2000, the Swiss Market Index (SMI) has risen by about 55% based on price gains alone, but when reinvested dividends are included, the total increase exceeds 200%.

Over the long term, dividends can significantly contribute to your portfolio’s overall return. Many investors also appreciate the stability of these payments—especially during turbulent market phases. Companies that pay consistent dividends often have resilient business models and strong financials.

In this article, you will discover the key criteria that define a strong dividend stock, gain an overview of major Swiss dividend stocks from a historical perspective, and learn about the key risks and considerations when investing in high-dividend securities.

What are dividend stocks?

Dividend stocks are shares of companies that regularly distribute a portion of their profits to shareholders. This profit-sharing, known as a dividend, is usually paid annually and is determined by the company on a per-share basis. Unlike pure growth stocks, which focus on price appreciation, dividend stocks offer a dual return potential: when you invest in them, you benefit both from possible price increases and from regular payouts.

Established companies with stable business models and moderate growth tend to pay higher dividends, as they require less capital for expansion.

What makes a "good" dividend stock?

A high dividend yield is not always a mark of quality. Several factors are important when selecting dividend stocks:

Dividend yield

This ratio indicates the relationship between the annual dividend and the current share price. A high dividend yield (e.g. 5% or more) suggests an attractive return on invested capital. However, be cautious: unusually high yields can be a warning sign that the market questions the sustainability of the dividend—for example, if the share price has dropped significantly while the dividend has not yet been adjusted.

Consistency and growth

A stable or rising dividend over many years is often a sign of quality and stability. Some Swiss companies stand out in this regard: Nestlé, Roche and Novartis have consistently increased their payouts for decades. You may know these companies as ‘dividend aristocrats’. Their commitment to regular dividends demonstrates not only financial strength but also a sustainable business model that withstands different economic cycles.

Payout ratio

The payout ratio shows what percentage of profits is distributed to shareholders. Sustainable levels are typically below 70–75%, ensuring that part of the earnings remains within the company for future investments. Be wary of very high payout ratios above 100%, as this could indicate that dividends are being financed from reserves or even debt—an unsustainable practice in the long run.

Financial stability

Strong balance sheets, stable cash flows and a robust business model are essential for reliable dividend payments. Companies in defensive sectors—such as insurance, food and healthcare—often have resilient revenue streams that remain stable even in economic downturns. Financial indicators like debt levels or cash flow coverage can help assess whether a company can maintain its dividend policy over the long term.

Historical overview of key Swiss dividend stocks

The Swiss stock market includes many companies with a strong dividend tradition. Below is a selection of stocks with historically high dividend yields.

Note: This is an objective overview of past performance and not a buy recommendation.

Swiss Life Holding (Insurance)

One of Europe’s largest life insurers, Swiss Life has maintained a dividend yield of around 4.5–5% and has consistently increased its payouts over the years.

Zurich Insurance Group (Insurance)

Zurich is known for its reliable dividend policy. Yields typically range between 4–5%, supported by a stable business model.

Swiss Re (Reinsurance)

Swiss Re has historically offered particularly high dividend yields—often 5% or more. In the past, some dividends were financed from reserves, which investors should consider when evaluating the stock.

Nestlé AG (Food & Beverage)

Nestlé is renowned for its consistent dividend payouts. Dividends have steadily increased for decades, with a current yield of around 3–4%.

Roche & Novartis (Pharmaceuticals)

Both Basel-based pharmaceutical giants have raised their dividends consistently for years. Recent yields have been around 3.8%.

Swisscom AG (Telecommunications)

Swisscom has paid a stable dividend of 22 CHF per share for many years—equating to a yield of 4–5% depending on the share price.

Baloise Holding (Insurance)

Baloise has offered dividend yields between 4–5% in recent years, following a conservative payout policy.

Please note: Past performance is no guarantee of future results. Always assess investments in the context of your personal financial situation. For more information on stock investments, see our article “Buying shares in Switzerland.”

Risks and considerations when investing in dividend stocks

A high dividend does not automatically mean a good investment. The payout amount alone says little about a company’s quality or future prospects. Despite their historical track record, dividend stocks are not risk-free. A careful analysis is particularly crucial when dividend yields seem unusually high. Before investing, we recommend evaluating the following risk factors carefully.

Market risks and price fluctuations

Dividends do not protect against capital losses. If a company experiences difficulties, a decline in its share price may outweigh the dividend income. While dividend stocks are often considered defensive, they are still subject to market fluctuations.

Interest rate environment

During low-interest periods, dividends have been viewed as a substitute for missing interest income. However, when interest rates rise, alternatives such as savings accounts or bonds become more attractive, potentially leading to portfolio reallocations.

Sustainability of dividends

Companies can only pay dividends if they have sufficient financial resources. If they consistently distribute more than they earn, financial stability may be compromised. Therefore, assessing the quality of dividends through annual reports or independent analyses is essential.

Concentration risk

High-dividend stocks often come from similar sectors, such as insurance or telecommunications. Overweighting these industries can lead to concentration risks within your portfolio. A well-diversified strategy helps mitigate this.

Taxation and withholding tax

In Switzerland, dividends are subject to double taxation. Firstly, they are considered taxable income. Secondly, a 35% withholding tax is deducted from Swiss dividends, which can be reclaimed through your tax return. Unlike capital gains, dividends are generally taxable in Switzerland. For international dividends, different rules may apply depending on double taxation agreements.

Dividend stocks should always be viewed within the broader context of an investment strategy and personal risk tolerance. While they provide potential for regular income, they also require patience and the ability to endure market volatility. Rather than focusing solely on high percentage returns, it is crucial to assess the quality and sustainability of a company’s dividend policy.

Conclusion: dividend stocks offer historically reliable returns

Historically, Swiss dividend stocks have provided reliable returns for many investors. Companies like Swiss Life, Zurich, or Nestlé exemplify a consistent dividend policy.

However, choosing the right dividend stocks depends on your personal situation, including risk tolerance, investment horizon, and overall asset allocation. Past performance is no guarantee of future results.

Dividends can play a valuable role in your investment strategy, especially if you seek regular income. However, they do not replace a well-structured financial plan. Professional advice can help you find the right balance for your portfolio. Our advisors are available to support you in optimising your investment strategy.