Boosting our dividend paying cash machine

Hi there, fellow reader. Happy you are stopping by!

Before going into our October share buys I’d like to tell you about a MAJOR STRATEGIC FINANCIAL DECISION my wife and I have taken.

As frequent readers of this blog know, my wife and I have been looking for a nice house to buy for around three years now (also see Dreaming big of a Tiny house).

Moreover, we have been seeking to acquire one or two rental properties to diversify and significantly boost our passive income stream.

However, after having studied hundreds of potential “acquisition targets”, my wife and I came to the  conclusion that house and appartment prices in central Europe are way too high to make intellingent investments. The real estate market has gone crazy and the risk for overpaying is just too high. Just think of that, all houses or apartments we would have been interested in cost more than USD 1 Mio!

During our search process we found out that homeownership is not our biggest Dream !

We want to remain mobile and as (financially) flexible as possible. Keeping our position – financially and mentally – in which we have options shows to be extremely important for us. 

Any real estate project has to be compatible with that focus.

That’s why we took the decision TO STOP actively looking for real estate Projects.

Of course, we will alway be prepared to pull the trigger, if attractive opportunies will arise but currently we see absolutely no point in  rushing into that crazy real estate market.

Our decision showed to be extremely liberating. And it leaves us with plenty of options.

Over the years, my wife and I had accumulated a nice cash pile we had initially designated as down payment for our real estate projects.

A portion of that cash will now be put to work for us. We will take a major step in boosting our investment process.

In fact, we will invest USD 60’000 from our cash pile in dividend paying stocks. That amount will be put to work in addition to our savings from our day jobs.

As we all know, stock markets are pretty high, so we will remain very selectiv and attribute our funds over a time frame of two years.

This will significantly fuel our process to generate passive income. We set following milestones:

• boosting our passive income in 2019 to USD 10’000 and
• making another jump in 2020 to USD 15’000.

We have the right platform to achieve these goas. Our current investment portfolio already consists of around 50 positions, currently churning out USD 7’000 in cash. These are pieces of strong businesses, their dividend raises (organic growth) and the consistent reinvestment of funds will be highly supportive.

And of course, the key element is our savings rate, we plan to keep it in a range of 50 % to 60 % over the next years. Our incomes from our day jobs are on one side stagnating which on the other side is very good, providing stability. Our clear focus on cost management makes it possible to “extract” a significant chunk out from our salaries and translate it in nice “profits” resp. savings we can put to work for us.

Okay, so much about our resource allocation plans for the next two years. Now let’s turn to our October stock buys where we alloted the first USD 8’000 of the USD 60’000.

Taking a stake in beer giant Anheuser-Busch InBev and duty free retailer Dufry

The last few weeks showed increased volatility in the stock market. Perfect conditions for us to put money to work.

My wife and I acquired shares of  Anheuser-Busch InBev and Dufry, around USD 4’000 for each of the two new positions. These investments will contribute to our forward dividend income (in 2019) by roughly USD 300.

Let’s look at Anheuser-Busch InBev first, and the reasons why that stock caught our eye.

My wife and I love to participate in companies that have strong brands, great long-term growth prospects and a broad economic moat.

For centuries, people have been drinking beer and spirits. The alcohol industry in general has performed excellently, there is a high level of profitability and stability. Businesses operate in durable and growing markets. Brand loyalty is very strong.

Anheuser-Busch InBev is by far the world largest brewing company owning amongst others following brands:

• Budweiser
• Corona
• Stella Artois
• Beck’s
• Löwenbräu

In October 2016, it purchased SABMiller and concluded a merger of the two entities. The stock price compression after the merger has been eye catching. Before the transaction in 2016, shares of Anheuser-Busch InBev hit EUR 120 per share corresponding to a valuation of well above 25x earnings. Early in 2017 the stock price came down to around EUR 100 to keep falling even further since then.

Given its stagnating core brands and the massive debt level, the current price of Anheuser-Busch InBev seems much more reasonable and attractive. And the beer giant clearly has the potential to unfold 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, that’s when my wife and I are keen on investing.

Now, let’s turn to our second stock acquisition we made in October.

Dufry is the world’s largest travel retail operator, with over 20 % market share  in the airport channel.

Dufry’s category exposure includes:

• perfumes
• cosmetics
• wine and spirits
• confectionary
• food
• tobacco

Dufry can be seen as a consumer business that markets premium products to international tourists.

As the clear market leader, Dufry benefits of economies of scale to negotiate favorable prices with suppliers (e.g. Philipps Morris, Estee Lauder, Brown- Forman, Diageo etc.). It has made a large number of exclusive arrangements with key brand providers which prevents to some extent smaller peers from presenting equally attractive offerings.

Just think of the set-up of airports. They are not only designed for efficiency and minimising time between flights. Airports and reatilers create designs that increase sales (a big portion comes from impulse buys). What do we all do while waiting at the airport? Well, there is not so much to do other than browsing some shops. These shops in a specific airport have a kind of monopoly position.

And Dufry clearly is the true leader in that business being the basis for a very broad economic moat.

 

What about you, fellow reader? Did you make some nice stock acquisitions recently? What do you think about Anheuser-Busch InBev and Dufry?

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.