The Diversification Dividend:
Europe 2024

Companies which diversify their revenue streams offer greater returns to their shareholders than those who don’t. Our latest study looked at the shareholder return data of 738 listed companies in Europe between 2019-2023, and compared the performance of those who added new revenue streams over the preceding decade to those that did not. We analysed sales data and the increase in stock price combined with dividend payouts. The findings offered a stark warning: a lack of diversification can be disastrous for shareholder value.

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Key Findings

The Diversification Dividend: EUROPE 2024

Scaling Success

Companies adding new revenue streams over time outperform peers that stick to their core business in terms of stock market performance.

Pandemic Resilience

During the COVID years and beyond (2020-2023), companies that had already added one or more revenue streams during the 2010-2019 period outperformed those that hadn’t. They delivered a 53% higher annual total shareholder return.

Inertia challenge

Large companies often face the challenge of active inertia, executing changes using tried-and-tested methods under outdated assumptions, which can impede effective diversification.

Methodology

We analysed sales and total shareholder return data from Refinitiv Datastream for 1,092 listed companies in Europe from 2010 to 2019 and for a subset of 738 listed companies for the extended period up to 2023. The regional sample sizes for the subset of 738 companies are: UK 163, France 87, Germany 79, Switzerland 64, Scandinavia 126, rest of Europe 219.

Total shareholder return [%] is, as per the Refinitiv Worldstream Return Index (RI) variable, defined as the increase in stock price over a certain period plus the dividend payout, assuming reinvestment of dividends. Our research focused on listed companies with the largest market capitalisation where stock market data was available for the periods between 2010-2019 and 2020-2023.

We analysed five points for every company. First, we calculated the relative amount of revenues in 2019 generated by business segments that did not exist in 2010. We followed the reporting of revenue segments in companies’ annual reports.

While, as an example, Netflix started testing online streaming prior to 2010, it was first incorporated in the 2012 annual report. This is common practice: ideate, test and iterate new business models until one creates enough traction to become a standalone segment.

Secondly, we analysed the average annualised total shareholder return for each company between 2010 and 2019 and – where available – between 2020 and 2023.

As a next step, we segmented the companies into two groups, determined by the level of revenues in 2019 generated from new segments that did not exist in 2010: 0% (no revenue from new segments) and over 0% (revenue from at least one new segment). We then calculated the medians of the annualised shareholder returns and the means of the number of revenue segments for the two groups and compared these two metrics across the groups.