Tesla’s gigantic stock price increase in the last few months has been watched closely by the investor’s community.

There’s little doubt that the share price of Tesla – if you look at it solely as a car maker – seems very stretched, already including plenty of positive news and expectations like strong second quarter results, massiveley improved financial position of the business, the prospective inclusion into the Standard & Poors Index this year- and of course “Battery Day” which takes places late in September.

A super growth company with a very rich valuation

Early in August, I made an unusual move: I initiated a position in Tesla for the amount of roughly USD 1’500 and sold all my stocks of oil supermajor ExxonMobil afterwards.

I consider myself as long term oriented investor trying always to look at the business fundamentals. And here, I have to say, that Tesla’s financial positition changed strongly in a matter of short time. To the very positive! Tesla is so well ahead of competitors in a range of areas like battery, solar technology, automatic driving software etc. which give the company huge monetising potential.

Looking at a company like ExxonMobil, in contrast, I have to say that I view this company more sceptically than I did a few years ago. Operational results were underwhelming for quite some time, even before the COVID-19 pandemic, when oil price was between USD 55 and 65 per barrel. And now, with oil being lower for the foreseeable future, I cannot see a real trajectory towards growth. I cannot recognize any vision. A few years ago, ExxonMobil was a AAA-rated company with a perfect balance sheet which should have thrived in challenging conditions. It could have benefitted from its strong position to become the clear, undisputed oil super major leader.

But ExxonMobil got complacent. And it’s position and profit base seems to be eroding.

As a value investor I love to see low P/E ratios and high dividends with a solid balance sheet. And still, uniquely looking at the underlying business, I’d consider a position in ExxonMobil not as less risiky as in Tesla. And even with recovering oil prices, there seems to be very limited upside potential for ExxonMobil.

Yes, Tesla’s stock price looks astronomically high. And one has always to be very cautious to not overpay. But valuations can change. Share prices fluctuate. And it’s important also to look at Tesla’s underlying business, which is thriving (I’d even say businesses, as it’s not just cars). Free Cash Flow is improving. Drastically. And the company is now even sitting on a nice cash pile. Tesla’s Gigafactories will boost production. And there is clear demand for electric vehicle around the world.

Tesla is a lot more than cars. It clearly has disrupted the car industry. And it won’t stop from here.

“Tesla’s mission is to accelerate the world’s transition to sustainable energy” as the company says on its website.

It’s an immensly interesting business with a superb potential, definitively worth a look. Even for value investors. The beauty of the stock market is volatility. One can always wait and see to find an interesting entry price.

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.

Constructing a diversified stock portfolio

If I had to name the top 50 assets to build the background of a bullet proof dividend stock portfolio consisting of wonderful businesses showing long term earnings and dividend growth over decades, I’d certainly put Swiss pharma giant Roche into that group.

Yes, there are Tech Giants that have a huge impact on the way we live, work and communicate, and sure, in a diversified portfolio there has to be an exposure to businesses like Alphabet, Amazon, Alibaba, Facebook, Microsoft and/or Apple. There is no doubt that these companies belong to the winners of the future.

But there is also a group of businesses providing you with an ever increasing passive income stream ready to reinvest and use the Power of the Domino Effect.

In order to establish Passive Income Sources and make use of the Compound Effect, one wants to have a look at stocks of enterprises one does not have to babysit, that keep rewarding their investors just for holding patiently their stakes for decades collecting escalating cash flow streams.

We all know the Dividend Aristocrats of the Standard & Poors Index, companies that raised their divideds for at least 25 years in a row. Businesses like Coca Cola, 3M, PepsiCo or Johnson & Johnson.

And here in Europe, we have wonderful businesses too, like Nestlé, Novartis and of course there is Roche.

A Swiss “Dividend Aristocrat”

Roche is a leader in diagnostics, cancer treatment and has an immensly strong position in biotechnology.

Roche sports a market cap of roughly Swiss francs (CHF) 300 Bn (one CHF corresponds to roughly USD 1.1), has revenues in the amout of over CHF 61.5 Bn with CHF 22.5 Bn in operating profits (numbers per 31.12.2019 2019).

Well, let’s face the fact: it’s just a massive business with a durable economic moat.

Roche has raised its dividend for 32 consecutive years and the company is committed to keep increasing its shareholder distributions in the future.

With a payout ratio between 50 and 60 % and annual growth rates in the mid single digit range coupled with a rock solid strong balance sheet, Roche is an interesting company to consider investing in.

A look at my Roche’s cash dividend returns

In 2011, I acquired 18 non-voting shares of Roche at a price of around CHF 135. Today, the stock price stands at around CHF 310.

Let’s have a look at the development of the yearly cash returns compared to my initial investment of CHF 135 in 2011 (yield at cost). The deduction of the Swiss witholding tax of 35 % resp. 15 % has hereby to be considered. When there is a double taxation treaty with the country of the investor, twenty percentage points can be reimbursed to that investor to lower the tax rate to 15 %.

From 2011 to 2020 the dividend payments (in CHF; gross amounts) from Roche were as follows: 6.80, 7.35, 7.80, 8.00, 8.10, 8.20, 8.30, 8.70, 9.00.

In the last ten years, I collected CHF 61.50 (net after taxes) resp. over 45 % of the invested amount in dividends.

These are quite decent returns so far. I don’t even factor in the book gain of 230 % or dividend (re-) investments.

My dividend yields at cost (after witholding taxes) increased from slightly over 4 % to currently 5.6 %. A few years, and one has a “high yield stock” but with a much more conservative and attractive basis in contrast to oil majors that are considerably less stable.

The interesting thing with Roche is that the stock rarely is overvalued. In fact, over long time periods the shares are trading at a discount compared to its peers such as Johnson & Johnson for example.

This is to some surprise in my view given the global footprint of Roche and its tremendously strong market position. But of course there also lies the window of opportunity.

I expect Roche to generate an EPS of 20 CHF in the current year and paying out a dividend of at least CHF 9.10 next year (for 2020). A starting gross dividend yield of slightly below 3 % acquired for a P/E ratio of 16 looks like a fair price to consider for a wonderful business.

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.

The latest stock performance of High Tech Giants like Apple, Alphabet, Microsoft and Facebook showed quite clearly a Polarization in the market.

High Tech Boom leaves behind some unloved companies and sectors

Long before the COVID-10 Pandemic, Digitalisation has been an overwhelmingly dominant secular trend that spread accross our society and all sectors and industries. And the Coronavirus with lock-downs all around the world gave these Tech giants like Amazon, Alibaba etc. just an awefully massive boost.

Big Tech belongs to the long term winners, there is no doubt about that.

On the other hand, the sector rotation resp. huge capital inflows into High Tech left some sectors and specific companies far behind the stock market recovery we have seen since the end of March 2020.

There is a nice window of opportunity for Dividend Growth Investors, to identify stocks with a long history of increasing shareholder payouts and resilience in the current highly dynamic environment.

While Oil companies and cyclical businesses in general are facing fundamental challenges and uncertainties, there are some kind of “hidden stock gems” in the market that show a nice risk-reward profile.

Conservative Dividend Growth Investors looking to establish an ever growing passive income stream want to look at Stocks that are rewarding long term oriented Shareholders for doing nothing. Just putting the increasing dividends to work by reinvesting into the investment portfolio again and again. That’s the Magic of the Compound Effect and how to use the Domino Effect when investing.

J.M. Smucker’s an underappreciated high quality business

While the company is not such a household name in Europe, J.M. Smucker products can be found in over 90 % of US households.

Just have a look at the company’s website: www.smuckers.com showing an interesting product range including

• coffee brands like Folgers, DUNKIN, Café Bustello,
• snacks like Jif peanut butter, Sahale, J.M. Smucker’s Uncrustables and
• pet food brands Milk Bone, Natures Recipe, Meow Mix.

Despite its compellingly diversified product portfolio (the largest segment is pet food) J.M. Smucker (NYSE SJM) is much smaller than Nestlé, Unilever or Danone for instance. It also does not get the same coverage .

It’s small and beautiful I’d say. J.M. Smucker is a business with a long history, in fact it has been able to grow over the last 100 years at an astonishing rate. As the company reports show, J.M. Smucker on average consistently increased earnings and dividends annually by a high single digit year after year.

The company stock has moved in a range of USD 100 to 125 (I acquired some shares in 2016) in the past years, down quite remarkably from its high of USD 150 in 2015.

Let’s be clear, J.M. Smucker is facing its specific challenges and massive competition from retailers with their own branded goods such as Walmart and Aldi.

And of course it it still digesting some relatively large acquisitions in the pet food sector (Big Heart Pet Brands) which left the balance sheet a bit stretched.

I am no fan of debt-fueled “external” growth.

But the deleveraging process is on track and what the stock price does not really reflect: J.M. Smucker has continued growing earnings per share and increased dividends.

Granted, it has been a bumpy road sometimes, there clearly have been some disappointing quarters where J.M. Smucker either missed on the top- and/or the bottom line.

But the fundamental business trend is satisfying and attractive.

With a 12x to 15x earnings valuation and a healthy dividend payout ratio leaving room to further reduce debt while investing into the business, you get a stake in an enviable brand portfolio churning out a steadily growing cash flow stream.

J.M. Smucker really looks like a compelling company Dividend Growth Investors should definitively have an eye on.

What’s your take on J.M. Smucker? Are you already a shareholder or do you have it on your watchlist?

Thanks for sharing your thoughts below in the commentary section.

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