Month: March 2017

USD 4’300 projected dividend income 2017

Posted on March 19, 2017 in Investing

That’s exactly how I like it!

My dividend stock growth machine is gaining steam. 

Slowly and steadily. 

Compared to 2016, my projected dividend income will be 10.5 % higher, climbing from USD 3’800 to USD 4’200 largely due to dividend hikes and by adding two positions. 

I am pretty sure that by the end of 2017, my dividend income will be well above USD 4’500.

Strong and reliable dividend growth

My goal is simple:

increasing dividend income by at least 15% year over year through organic growth (dividend hikes), reinvestments and by adding new positions (see my Passive income review 2016 and outlook and my Stock Investments in 2016).

In my blogpost Dividend increases regarding my stock holdings I made a first overview regarding organic dividend growth of my stock investments. The list above shows you an update. As you can see, 26 of my stock holdings announced their 2017 dividends so far, 6 companies will report their 2016 results in a few weeks resp. have not yet published information on dividend increases for 2017.

Most of my holdings show nice dividend hikes. “High yielder” in my portfolio such as Royal Dutch Shell, HSBC and GlaxoSmithKline offer dividend reinvestment plans. My stock count will develop quite nicely over time. 

Slow dividend growth is nothing to lament about! Nestlé’s dividend hike for example was relatively small. But here’s the thing: my yield on cost less witholding taxes is 3,8 %. Taking into account the reimbursement on the basis of a double taxation treaty lowering the Swiss witholding from 35 % to 15 %, my yield will be substantially higher, being at around 4.5 %. Over the last 8 years, Nestlé has steadily increased its dividend payments and returned to me well over 30 % of my initial investment.

I love reliable and stable businesses.  Nestlé made generations of investors a fortune just by taking a long term view, sticking to their holding and by letting the company doing its work.

More dividend income increases expected

So far, I’ve added two new positions in 2017:

  • beer producer Heineken (see A refreshing investment) and
  • tobacco company Imperial Brands (Davidoff, Cohiba, Montecristo etc.).

My investment portfolio is getting more defensive and these two position will add USD 160 to my dividend income in 2017. I expect future growth to be at a high single digit rate.

And there is more growth to come during the year. As said, 6 companies of my investment portfolio have not yet announced their dividend increases. Among them oil supermajors ExxonMobil and Chevron. I am pretty sure that there will be dividend hikes albeit significantly lower than in the past years. Oil prices recovered quite a bit since the terrible drop in 2015 and of course these companies are streamlining at an amazing pace and ramping up huge projects which should show improved operative cash flow quite significantly.

Given the strong boost of our savings rate, now being well above 60 %, I expect my investments into new positions to be a bit higher than in the previous year (2016: USD 16’000).

I don’t mind market fluctuations and have been investing on a regular basis for almost a decade now. But with stock indices at record highs and mushroomed share price valuations, I am gettting a bit more cautious. In my view it’s sensible to be extremely selective and to keep additional cash just to take profit when there is a market retreat which makes it easier to identify suitable investment oportunities. Either way, my portfolio will be doing just fine over the long term. 

My journey as a dividend growth investor is becoming more and more fun.

 

Have you added new positions to your portfolio lately? Have there been some dividend hikes?

 

Disclaimer

You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

A refreshing investment

Posted on March 11, 2017 in Investing

I just love to participate in companies that have strong brands, great long-term growth prospects and a broad economic moat. Take the Dutch-British consumer goods company Unilever for instance. Did you know that 2.5 billion people use resp. consume its products each day? Unilever owns 400 brands, it’s a massive business operating in following four segments resp. divisions:

  • Foods (Knorr, Rama, Lätta, Maizena etc.)
  • Refreshments (Lipton Ice Tea, Magnum, Ben & Jerry’s etc.)
  • Personal Care (Dove, Axe, Rexona, Dusch Das, Signal etc.)
  • Home Care (Omo, Persil, Coral, Cif, Skip etc.)

I see plenty of catalysts for growth and  a well diversified, extremely stable business model.

In the last three years, I took some exposure in cyclical sectors and commodities (Rio Tinto, BHP Billiton) as well as in banks, but I consider defensive stocks such as consumer staples (Coca Cola, Nestlé, Diageo, Unilever) and pharma companies (Bayer, GlaxoSmithKline, Roche, Novartis) as the backbone of my investment portfolio. And I want to give it an even more defensive shape. What I like is stability and healthy growth of my passive income (see dividend increases regarding my stock portfolio).

Heineken N.V., my first purchase in 2017

You will certainly guess my choice when I want to drink a beer on a hot summer day.

But in additional to its flagship brand, the world second largest beer producer Heineken offers 250 regional and international brands such as Amstel, Tiger, Desperados etc..

The valuation of the stock was slightly below 20x earnings when I made my investment. Certainly not cheap, but in my view a fair price, given the company’s growth prospects, solid fundamentals and strong brands. For 2016, Heineken reported organic revenue growth of 4.8 %, net profit was 8.5 % up organically. Heineken has a broad economic moat, a strong and stable free cash flow and a healthy dividend payout ratio of around 30 %.

Some brief considerations on alcohol investments

People have been drinking beer, wine and spirits for centuries. The alcohol industry has performed excellently during the last 100 years due to the high level of underlying profitability and stability. Companies such as Brown-Forman, Diageo, Anheuser-Busch InBev, Heineken and Carlsberg operate in durable and growing markets. Brand loyalty is extremely strong.

So, are shares of these wonderful businesses in such an attractive industry the perfect long-term investment? Well, it depends on the price you pay.

Take for example Anheuser-Busch InBev. (Budweiser, Corona, Stella Artois, Beck’s, Löwenbräu etc.) which is by far the world largest brewing company. In October 2016, it purchased SABMiller and concluded a merger of the two entities. Before that transaction in 2016, shares of Anheuser-Busch Inbev. hit EUR 120 per share which corresponds to a valuation of well above 25x earnings. Early in 2017 the stock price came down to around EUR 100. Given its stagnating core brands and the massive debt level, the current prices seem more reasonable and attractive to me. After the completion of the merger, Anheuser-Busch InBev. has the potential to unfold its staggering earning power, deleverage and grow dividends in the medium and long term.

When some temporary factors pressure down the price earnings ratio of a consumer staples company with such a compelling brand portfolio, such a broad economic moat and bright long term growth prospects, that’s where I get interested.

As it is always when it comes to an investment: it is only rewarding unless you overpay.

 

What do you think of my investment in Heineken? Which branches and industries do you consider as the backbone of your portfolio?

 

Disclaimer

You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

Dividend increases regarding my stock holdings

Posted on March 5, 2017 in Investing

Since 2009 I have been building an investment portfolio consisting of dividend paying stocks with the purpose of transforming it in an ever growing passive income machine over time.

Today, my stock portfolio consists of over 30 positions and has a market value of almost USD 140’000. But more importantly, since 2009 the companies in my share portfolio have returned a total of USD 20’000 in dividends and will provide at least USD 4’500 in fresh cash for 2017. I expect my annual dividend income to continue to grow by 15 % on a Year on Year (YoY) basis. As in the past, half of that growth will derive from new positions (see My stock investments in 2016) and the other half is expected to come from organic dividend growth and dividend reinvestments (see Passive Income review 2016 and Outlook).

So far, over 70 % of the businesses in my portfolio have published their full year results for 2016 and already given information regarding dividend payments to be expected in 2017. That allows me to make some projections regarding organic dividend growth and my expected Yield on Cost (YoC) regarding each position (see chart above). Of course, most of these dividend announcements are still subject to the approval by the annual general meeting. I calculate YoC on the basis of the net cash payments I will receive this year. For simplification purposes, I do not take into account reimbursements I will receive with regard to witholding taxes. The Swiss witholding tax on dividends for instance is 35 % but I can lower that tax rate to 15 % on the basis of a double taxation treaty which will significantly increase my dividend yield on my holdings in Nestlé, Roche, Novartis, Swiss Re etc.. These reimbursements will likely take place in 2018 with regard to deductions on my stock dividends in 2017.

My financial portfolio is denominated in Swiss franc and I hold major positions in EUR, USD and GBP. So there might be some devations with regard to my projections concerning YoC due to exchange rate fluctuations. Over the long term, these fluctuations will smooth out and of course as an dividend growth investor in the accumulation phase, a strong Swiss franc towards other currencies is a real blessing (see also The day when my portfolio dropped by 15 %).

So far, dividend growth looks fine. As soon as the rest of the businesses in my investment portfolio will release 2016 results and dividend announcements, I will update my chart and briefly cover each of my stock positions.

 

What about your stock holdings? Have there been some nice dividend hikes? Any dividend cuts?

 

Disclaimer

You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.