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The Dax and its dividend trick

D.Germany’s leading index is often symbolized with the image of a black-and-white furry badger, because the pronunciation is so good. In terms of content, the picture of the cunning fox, who is a friend of the good badger in the mythical world, would be more appropriate.

The Dax is actually pretty clever when it comes to presenting itself positively in comparison with other stock market indices. Although this is unusual internationally, when calculating the leading index, Deutsche Börse takes into account the dividends distributed by the companies included to their shareholders. In addition, the calculation is based on the assumption that the distributions made to the shareholders will be reinvested in full in the Dax.

The major Dax reform announced earlier this week is supposed to change and improve a lot, but nothing changes in the clever trick with dividends. The Dax remains a so-called performance index, which is just a fancy anglicism for the dividend trick. The leading index is a media star with daily appearances in the financial press and on television. The dividends give him a shoulder pad that makes him look good compared to other stock market indices.

Euphemistic shoulder pads

Now there have always been variants of all indices with and without dividends, so investors can use the Dax price index to get a picture of the naked Dax without shoulder pads at any time.

Regardless of this, the Dax constantly presents itself to the public in the euphemistic version of the performance index, while the American S&P 500 or the Japanese Nikkei 225 appear as standard in the more honest version of the price index. A price index only takes into account the share prices of the companies it contains, excluding their dividends.

The American traditional index Dow Jones is also presented in the form of the price index. On Tuesday he reached a record high of more than 30,000 points. The Dow managed to do this without dividends, of which, however, less flow in the Corona year than usual. Of course, it is legitimate to take dividends into account, after all, they increase the return for investors. In addition, they already flow into a share during the holding period, whereas price increases are only realized when the security is sold. Even the dividend reinvestment premise may make sense; after all, accumulation funds do nothing else. However, Dax investors should always use the pure price version of the Dax for a fair index comparison.

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