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.
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.
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.
Rochehas 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.
Hey there, fellow reader, glad you are stopping by for a brief update on our key financial numbers (savings rate, total wealth) and our passive income generation.
Note: all number are in Swiss francs (CHF). CHF 1 corresponds to around USD 1.11.
Financial Highlighs in July
Our savings rate climbed strongly compared to the previous month from 48 % to now 60 %.
Our Wealth climbed by CHF 10’000 to a total of CHF 900’000 driven by stock market performance (while USD-devaluation against CHF was a headwind) plus robust savings from our day jobs.
Dividend income was stable compared to the same month in the previous year (CHF 418 vs. now CHF 419) While there were several dividend cuts which of course hurt, that adverse impact could be offset by new stock positions (tobacco giant Altria, drink maker Berentzen, insurance company Swisslife) which contributed nicely to our July results.
Peer to Peer and Crowdlending Income was slightly lower than in the previous month (CHF 226 versus CHF 210).
With CHF 663, our total Passive Income was 58 % higher than in the same month last year.
In July, no new Stock Positions were added to our investment portfolio.
Last month I started a Passive Income Challenge with the goal of adding one new passive income source each month. In June I added Cashback Credit Cards as an additional interesting income source and in July I added Referral Income which contributed in the amount of CHF 12.
I will write a separate blogpost on my Passive Income Challenge and share with you how I establish new streams of cash flow.
So, stay tuned.
What about you, fellow reader, how was your July in terms of Passive Income? Did you buy some interesting new stocks?
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.
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.
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
Welcome to My Financial Shape for a new monthly update on our latest financial achievements and projects, documenting the journey of our family of four towards achieving Financial Independence by 2020.
Financial Highlights of the month
Savings rate 48 %, down substantially compared to the previous months (pent-up spendings and first family holidays since eased lock-downs in Central Europe).
Wealth increasedby USD 12’000 to a total of USD 890’000, driven by stock market performance and savings from our day jobs (active income) plus cash flows from our investments (passive income).
Income from Peer to Peer – and Crowdlending Platforms (P2P/CL): USD 226, down compared to previous months due to cash withdrawals.
Start of Passive Income Challenge (adding each month one more cash generating source). In June, a new revenue stream was added with my new Cashback Credit Card.
Strong investment process in June, putting roughly USD 17’000 to work (six Big Tech Names were added to stock portfolio, furthermore my wife and I took a stake in a Swiss chocolate producer and a Mexican mining company).
All right, let’s dive into the Financial Update for June:
Strong cash generation partially offset by increased spendings
My wife and I both work part-time (50 % and 90%) and have always set a very strong focus on a robust savings rate which is the corner stones of one’s Financial Shape and the basis og our Investment Process.
The more cash we are able to put aside from our day-jobs, the more we are able to acquire income producing assets such as dividend paying stocks, corporate bonds, consumer – and real estate loans (through P2P platforms) etc.
We define our savings rate as the percentage we are able to “extract” as savings from all our income sources (net amounts, after taxes etc.) such as our two salaries, dividends from share positions, received interests (from corporate bonds, P2P investments etc.).
My wife and I target a savings rate of 60 % on average.
June was characterized by several additional spending positions. First, we took the first holiday since lock-downs in Central Europe had been lifted. We spent one week in Germany and travelled around in Switzerland. It’s just awesome to be able to travel again. But it also means over USD 2’000 in additional costs for our family of four.
Discretionary consumption in general was significantly higher June compared to the previous months, in particular when looking at March and April, which showed our best savings rate ever (75 % and 78 %) due to the lock-down, which forced us to push back and even temporarily eliminate spendings (such as dentist, opticians, gym, restaurants, cinema etc.).
With 48 %, our June savings rate was still robust, but significantly lower than in the previous months. My wife and I will work on our cost structure in the following months so that on average, our savings rate remains at around 60 %.
Our Wealth Structure in June: still overweighted in Cash
Wealth increased from USD 867’000 to almost USD 890’000. We still have ZERO DEBT but will consider to take on some leverage when it comes to building up our real estate portfolio which should provide us with an ever increasing cash flow stream from rental income.
Main drivers of June wealth increase were our savings and a very robust stock portfolio performance. In June, global capital markets clearly had a nice run. Furthermore, we invested quite heavily in June, with new stock additions in the amount of USD 17’000, bringing the total value of our stock portfolio to well above USD 323’000.
June showed some strong exchange rate fluctuations. GBP, USD and EUR weakened against the Swiss franc (denomination of our stock portfolio). As 40 % of our stock portfolio is in these foreign currencies the devaluation of almost 5 % against the Swiss franc was a strong headwind, lowering the overall positive performance for the month.
Deposits on bank accounts (our cash pile) decreased from USD 541’000 to now USD 531’000 amid strong investment process. Our cash pile is still our largest wealth position by far, with almost 60 %.
I withdrew another USD 2’000 from our P2P and crowdlending portfolio. Currently we have roughly 36’000 invested in consumer – and real estate loans on six platforms Mintos, Bondora, TWINO, Iuvo, Evoestate and Crowdestate. These investments account for around 4 % of our total wealth.
USD 1’700 from three passive income sources, a cool 70 % jump Year over Year
After two “weaker” income months in April and May (both with over USD 2’000, but still lower compared to the same months in the previous year), I am more than happy to see our two cash Machines (our dividend paying stock portfolio and our P2P- and Crowdlending Portfolio) returning to growth, churning out more money than in June 2019 (USD 1’700 versus USD 1’175).
Compared to the same month in the previous year, P2P and Crowdlending investments now contribute nicely to our Passive Income Stream.
Furthermore, I am currently reshaping our investment portfolio to have a stronger exposure in Tech stocks, which are the clear winners in a “pandemic environment”, but most of these investments don’t pay dividends.
A large portion of our stock investments in the last weeks were funded through cash withdrawals from our P2P platforms, which further weakened their Passive Income Generation Capabilites.
Initially, we had planned to acquire real estate in 2020 and rent it out to generate nice cash flow streams. But that project had to be postponed to fall 2020 due to the Covid-19 pandemic. We are sitting on quite a large cash pile but we will need every single cent when we finally jump into real estate investing which requires to deploy significant amounts of liquidity. So, preserving our cash pile and grow it further is important.
That brought me to the idea to adding smaller cash flow sources requiring little or no capital and give us the possibility to diversify and strengthen our Passive Income Streams (see later in this blogpost).
Strong Dividend Income in June despite several payout cuts
As said, the COVID-19 pandemic and global lock-downs around the world had a huge impact on companies.
Five of our June dividend contributors cut their and dividends:
Royal Dutch Shell (previous year USD 130, now USD 38)
Deutsche Telekom (previous year USD 265, now USD 217)
Imperial Brands (previous year USD 59, now USD 40)
Anheuser Bush (previous year USD 36, now USD 17)
SIXT (previous year USD 105, now USD 2)
One business completely eliminated payouts to shareholders in 2020:
Nokia
Porsche Automobil Holding which is a larger and important June dividend contributor postponed its stockholder distribution.
Compared to June 2019, there is one new dividend payer with British insurance company Admiral Group.
For us as very long term oriented dividend growth investory, payout cuts are a huge headwind. We have been consistently saving and putting money to work by investing in dividend growth stocks to build an ever growing passive income machine. We want to take profit of the Magic of the Compound Effect.
Building a Tech-Portfolio while further strengthening our dividend portfolio
The COVID-19 pandemic clearly put even pressure even on consistent dividend paying stocks. We remain true to our long term strategy but decided to adapt our approach quite a bit.
Since April 2020, I’ve been accumulating shares of Tech Companies which have a huge advantage amid the currend COVID-19 pandemic such Alphabet, Amazon, Alibaba and Shopify.
In June, I continued to acquire Tech Positons by investing almost USD 14’000 in that sector:
Microsoft (ca. USD 2’000)
Facebook (in two tranches for USD 2’000 each)
Slack (ca. USD 1’800)
Cloudflare (ca. USD 1’800)
Prosus (ca. USD 1’800)
Fiverr (ca. USD 1’800)
Furthermore, I acquired stocks of Swiss chocolate producer Berry Callebaut (roughly USD 2’000 invested) and of the Mexican mining company Fresnillo (for around USD 1’800), which is the world largest silver producer.
I will write a separate blogpost on my June stock buys and update a separate site on www.myfinancialshape.comshowing all our Tech Holdings with a short presentation of theses companies, their strengths and weaknesses and my rationale behind the stock acquisitions. So, stay tuned.
My wife and I have always been keen on Passive Income Generation. Receiving cash flows with little effort to earn and maintain is kind of the holy gral when it comes to Pursuing Financial Independence. Once the total of annual cash incomefrom passive sources – such as dividends, interests etc. – match our spendings for the year, we are financially free.
As said, my wife and I are always open for interesting and feasible passive income ideas.
Income from Cashback Credit Card is an interesting way to put a new source in place with almost no effort. All I have to do is just use my credit card to pay things I would have to pay anyway. Receiving 1 % to 2 % on purchases for doing nothing, why not? It took me some time to realize this passive income source as most of the time I pay in cash or via bank transfer. And I will certainly continue to do so but from time to time, I’ll pay with my Credit Card and collect 1 % to 2 % cashback.
Currently, the bulk of our passive income is provided by dividend paying stocks and our P2P/CL investments. In automn, we want to acquire some real estate objects Rental properties are set to become our Third Passive Income Machine.
But there are plenty of ways to establish passive income streams and what I will do is to establish one new position each month.
What about you, fellow reader, how was your June? Which passive income sources do you have?
Thanks for sharing your thoughts and ideas 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
