2020 was the year when I made significant changes to my investment portfolio.

I almost invested USD 70’000 into company stocks, mostly to build up a strong Tech Portfolio which since then contributed strongly to my overall performance.

But in 2020 I also invested in dividend paying shares

• in the insurance sector (Swiss Re, Swisslife, Allianz, Admiral),
• in oil and gas producers and mining companies (British Petroleum, Fresnillo etc.) and
• I put money into my favorite sector Consumer Staples by investing in strong businesses like British producer of premium drink mixers Fevertree, Swiss chocolate maker Berry Callebaut and last but not least in Italian spirits maker Campari Group.

Campari Group is one of my favorite alcohol company position in my stock portfolio, along with Pernod Ricard, Diageo and Heineken.

In this article I want to give you some information on Campari Group, which due to its relatively small side is not necessarily on the radar of investors.

Business Snapshot

Davide Campari-Milano N.V. (Campari Group) is an Italian company which is active since 1860 in the branded beverage industry.

The company produces spirits, wines and also soft drinks.

Certainly, the most known products in its brand portfolio is Campari Bitter, an alcoholic liqueur.

But over decades, the Campari Group extended its product range with over 50 brands, including

• Aperol
• Appleton
• Cinzano
• SKYY Vodka
• Forty Creek Whisky
• etc.

Compared to its larger rivals such as Diageo (Johnny Walker, Vodka Smirnoff, Baileys etc.) and Pernod Ricard (Havana Club Rum, Absolut Vodka etc.), we have with the Campari Group a sweet niche-player with annual profits that compare favorably with Brown-Forman of around EUR 1 Bn. resp. USD 1.2 Bn.

But Campari Group is more evenly diversified over its 50 brands and has an astounding global reach for such a small company.

US competitor Brown-Forman for instance has over 40 brands but is highly focused on its two flagship brands Jack Daniels and Forrester. Brown-Forman’s annual net sales are in a range of USD 3.5 Billion and an operative income of above USD 1 Bn.

With sales of roughly USD 14 Bn and an operating income of roughly USD 2.5 Bn, British giant Diageo is much larger than Brown-Forman and Campari Group.

But Diageo also has lower operating margins than Campari Group or Brown-Forman. Diageo has a different product portfolio and another strategic approach with a strong focus also on beer brands (such as Guiness beer) which have lower margins than spirits.

Campari Group came out of the pandemic stronger than ever

Looking at the stock price dynamics, it is obvious what an exceptional wealth creating factor Davide Campari stock must have been for its long term oriented shareholders.

Campari Group has been on the stock exchange for 20 years and has increased its market capitalisation 15 times to EUR 13 billion which means that we are speaking here about returns of 16 % since the company IPO. Now, that is a significant outperformance of industry peers such as Brown-Forman and Diageo etc.

During the pandemic in 2020, Campari Group worked hard strengthening its competitive position, having an eye on cost discipline and on deleveraging while at the same time ensuring future growth mainly through bolt-on acquisitions.

For instance in June 2020 Campari Group acquired a 49 % interest in Tannico, a leading e-commerce platform for wines and premium spirits in Italy. The investment amounted to around EUR 24 Mio. and is an interesting move given the fact that the world was in lockdown amid the COVID-19 pandemic and most businesses focused on preserving cash to survive. Not so Campari Group. Also in June 2020, the company acquired French Champagne Lallier for over EUR 48 Mio.

In February 2020, before the pandemic hit, Campari Group had already acquired the Baron Philippe de Rothschild France Distribution S.A. for EUR 60.

What’s also interesting, is that amid heavy investments to grow the business, Campari Group also managed to cut debts.

The first half 2021 results highlights show how nicely Campari Group recovered from the pandemic.

Quote:
• “Strong business momentum confirmed, driven by the consumption bounce back in the on-premise channel
upon its gradual reopening in Q2, sustained home consumption driving the off-premise channel, and a favourable comparison base.
• Reported net sales of €1,000.8 million, +37.1% organic growth vs. the first half of 2020 (+30.2% on a reported basis), and +22.3% organic growth vs. the first half of 2019.
• EBIT adjusted of €223.2 million, +88.7% organic change, +640 basis points accretion (+33.3%, +190 bps margin accretion vs. the first half of 2019).
• Group net profit adjusted of €156.8 million, up +101.9% excluding the net positive adjustments of €2.8 million.
• Net financial debt of €1,064.8 million as of June 30th, 2021, down €39.0 million vs. €1,103.8 million as of December 31st, 2020. Recurring free cash flow at €141.6 million, up +117.7% vs. H1 2020 and +64.2% vs. H1 2019.”

Now, Campari Group is not a dividend aristocrat such as Brown-Forman with a more than 25 years long streak of rising dividends. And given the fact that Campari Group stocks almost always trade at a market premium (most of the time over 35 Price Earning Ratio), investors have to be prepared to enter into a modest starting yield of around 1 to 1.5 %.

Campari Group held its dividend payout stable through the pandemic. The company has been paying out dividends since 2001 and there has not been an increase every year. But still, over the years the dividend has grown by 120 % over the last 20 years. Campari clearly gives the preference to growth and acquisitons.

Campari Group has a healthy dividend payout ratio which has been in a range of around 30 % on average since 2001.

As a fast growing niche player, Campari Group has plenty of opportunities to increase its top- and bottom line over time which should find its reflection in attractive dividend growth over time.

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.

For long term oriented dividend growth investors in the accumulation phase, bull markets really are a double edged sword. On one side, it’s great to see the book values of share positions grow and of course this is a significant factor in the wealth accumulation process. On the other side, acquiring income generating assets is tough when they get more and more expensive.

September 2021 showed some welcome price pressure on international stock markets and after a few days of red stock market days, I decided to pull the trigger and put the amount of roughly Swiss francs 8’000 (CHF; 1 CHF = USD 1.1) to work by investing into following businesses (see in brackets the invested amounts):

• Geberit (CHF 1’377)
• Schindler (CHF 1’928)
• Emmi (CHF 1’960)
• Ems Chemie (CHF 1’783)
• Eckert & Ziegler (CHF 953)

Geberit is a Swiss multinational group which is specialized in manufacturing and supplying sanitary parts and related systems. Geberit has an incredible economic moat on the back of a strong brand giving the company with pricing power. I particularily like the very strong financials with very low debts (debt-equity ratio of around 0.40).

Schindler is another Swiss “hidden stock gem” with an amazing international presence. The group manufactures escalators, moving walkways and elevators around the world. The business model is attractive with high ROI and benefitting of global megatrends (population growth). Like its peers Otis, Kone and Thyssen, we see as well with Schindler an attractive element: recurring income as escalators and elevators need regular services once they are installed.

Emmi is a Swiss milk processor and dairy products business. It’s a rather small company compared for instance with Danone, but I know that company quite well which operates in my home-market Switzerland.

With already some chemical business exposure through investments in BASF, Covestro, Victrex etc., I hesitated some time buying stocks of Swiss specialty chemical player Ems Chemie. But as we have here such a high quality business and with the stock price having been falling so nicely in September, I just couldn’t pass on this buying opportunity.

Eckert & Ziegler has been on my personal watchlist for some time. The company is one of the world’s largest providers of isotope technology for medical, scientific and industrial use. The core businesses of the group are cancer therapy, industrial radiometry and nuclear-medical imaging.

For 2021, I target USD 15’000 in total passive income and these five new stock holding positions having been added in October will strengthen my Dividend Portfolio further and increase my forward dividend income by around USD 200.

It’s just great getting paid each month with dividends and giving my income a nice boost.

What about you, fellow reader, did you buy some stocks recently?

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.

In 2020, amid the COVID-19 pandemic, I took the decision to build up a Tech Portfolio to have more exposure to the secular trend towards increasing digitalization of our economies and societies as a whole.

I have been a dividend growth investor since 2009 and continue building that passive income machine which is set to churn out USD 15’000 in 2021 and has so far generated over USD 50’000 in cummulative dividend income in the last decade.

Amid a raging bullet market, both of our two independent stock portfolios increased to a market value of well above USD 450’000 which is a very nice development.

On the other hand, higher stock prices makes it costly to add to share portfolios.

But in my view there are still some company stocks worth having a closer look at. One of them is Japanese multimedia and gaming giant Nintendo.

Through Microsoft (XBox, Minecraft) and Draftkings I have already some exposure to the gaming sector. But Nintendo in contrast is a pure gaming play with an incredible brand portfolio and franchises. You find numerous names we all know, such as:

• Mario
• Donkey Kong
• The Legend of Zelda
• Animal Crossing
• Pokémon
• etc.

Nintendo also holds a major stake in The Pokémon Company.

Nintendo has a broad array of entertainment products including

• portable and console game machines,
• home console hardware (Nintendo Wii, Nintendo 3DS etc.),
• software for home console and portfable gaming machines,
• trump card and Karuta (Japanese-style playing cards),
• consumer electronics
• etc.

Nintendo has an incredible IP (intellectual property) which it can potentially leverage significantly. Take for instance the theme park Super Nintendo World.

Nintendo was founded in 1989 and for decades, its consoles and games have been popular with hundreds of millions around the globe. Nintendo has staying power and benefits of strong brand loyalty.

The Nintendo stock currently offers a dividend yield of around 4 % which is quite interesting given the robust financials and resilient business model on the back of iconic brands and franchises.

Nintendo distributes roughly one third of its free cash flow to its shareholders while at the same time consistently reinvesting into its business and ventures.

Nintendo offers some nice opportunities, but I would like to see a stronger move into streaming and a more bold approach in leveraging its IP. Nintendo could also move to subscriptions models to establish recurring revenue streams.

Compared to The Walt Disney Company which is in a deep transformation process, focusing on streaming (Disney + etc.), Nintendo has a different approach, which to some extent is reflected in the stock price dynamic. Nintendo is innovative in terms of new devices, but from time to time, they flop like the Wii U in 2012. Nintendo combines hardware and software but as said, streaming and leveraging its strong IP could boost the company’s profitability. Being not more aggressive, could lead to missed opportunities.

Nintendo offers a decent stock price with a well covered dividend yield of 4 % combined with attractive growth prospects.

I initiated a position for around USD 3’000, adding to my forward dividend income over USD 100 per year.

What about you, fellow reader, did you buy some stocks recently? What’s your opinion on the Nintendo stock?

Thanks for sharing your thoughty in the commentary section below.

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.

Having been a dividend growth investor since 2009, I have accumulated through the years over 70 stock positions churning out increasing cash flows streams.

To my favorite investment positions belongs the Swiss pharma giant Roche. It’s a company not covered all too much on investment blogs which is interesting, given the fact that this business has been paying out increasing dividends since 1988. It’s a “boring business”, unspectacular and steadily growing.

I’ve already covered the company in two articles:

• Roche’s dividend keeps steadily climbing and
• Slowing dividend growth is nothing to lament about

Now I want to share with you in a brief YouTube video the cash dividend returns from 2011 to 2021 I received from my Roche stock holding.

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

If someone wants to illustrate Warren Buffet’s quote that the stock market in the short term is a popularity contest, but a weighing machine over the long run, then the stock price dynamics of software and cloud giant Microsoft gives the perfect case study. It’s also a great example to show, what long term investing really means: we are talking about sticking to shares of a wonderful business not just for some years, but for decades.

Just look at the last twenty years.

From 2001 to 2011, after the so-called “dot-com bubble” burst and tech company stocks have been out of favor for a long time stretch, Microsoft shares were flat for years.

But just look then at the stock price dynmics from 2011 to 2021, the stock price litterally went parabolic, shooting up from around USD 25 per share to over USD 300 in a matter of just ten years.

But I am not talking here about huge book gains a long oriented investor could have capture here. Even better, Microsoft started paying dividends in 2003 and has been hiking them annually in the high single digit rate. Microsoft – by the way like Apple – is a so-called Dividend Challenger, belonging to a group of companies that have consistently increased their shareholder distribution for more than eight years. My guess would be, that Microsoft will be able to continue that dividend hike streak for many years.

Microsoft is one of the very few Tripple A businesses in the world. Microsoft’s outstanging debt of around USD 64 Bn looks huge at first sight, but when putting into relation to the company’s USD 132 B available cash and equivalents and in particular comparing it with Microsoft normalized annual Free Cash Flow of over 30 Bn, then the leverrage level not only is very well manageable but it looks modest.

Microsoft together with Amazon and Apple belongs to the world’s largest and most successful technology companies. Just think about that: how many businesses have had such an impact on the way we work and communicate as Microsoft did?

For sevaral decades, Microsoft has been a major force in driving the secular trend towards digitalization.

And Microsoft has transformed itself.

Whats extremely interesting is the fact that Microsoft has been able to shift most of its products towards the higher-profit monthly subscription model. The company is so extremely dominant in the business area and many applications in the medical, legal, and other professional fields outright require the use of Microsoft Office and other Microsoft services kind of as a default mode of communicating information. 

But there has been even more dynamic, beyond the “money printing model” of Microsoft. For decades, profits came from licensing its software and operating systems. But today, it’s so much more. Over the years Microsoft expanded and diversified and today has following three business segments:

• Productivity & Business Processes,
• Intelligent Cloud and
• More Personal Computing.

In each of its operating segments Microsoft is in a leading position with stable growth in revenues. Microsoft clearly has many levers for further growth and increasing profit margins.

From 2001 on, Microsoft has been able to generate unleveraged earning returns of over 35 % each year. That shows what a compounding machine Microsoft is. That company is three times more profitable than the average fortune 500 company.

Microsoft is so dominant in various areas and has shown again and again its ability to scale up its position. The rating agency Fitch brings it to the point in its latest commentary on the company:

Microsoft is well-positioned for cloud computing services, leveraging its legacy strengths in software applications that benefit from strong network effects. Fitch expects Microsoft’s cloud-based products, including Office 365, Dynamics 365, Azure and server products, to continue to provide robust growth to mitigate the secularly weaker and cyclical PC-related products. In addition, the adaptation of the Office suite of products to the cloud delivery model effectively decouples Office products from personal computers (PCs), enabling continuing growth of Office products in spite of the secularly weaker PC industry. The coronavirus pandemic has boosted both software and hardware products for Microsoft, as remote work has increased demand for overall IT products.

Now, coming back to Microsoft’s stock price, it looks that the dynamic has gone a bit ahead of itself. I mean for decades the Price Earnings Ratio has been below 20. Since mid 2020, amid the COVID-19 pandemic, that has changed significantly. We are looking at siginificantly higher multiples, with a PE-Ratio of over 35. Now we have to bear in mind that growth to the top- and bottom line of the company has even increased and we are looking at a much more diversified company than for instance a decade ago.

The stock market provides a great mechanism, bringing together supply and demand in an efficient way. The stock market has to serve long term oriented investors, showing them from time to time attractive entry prices.

Personally, I will let my Microsoft stock position run. It’s important to let winners run.

And who knows, the popularity of a stock can alter, and share price levels come downs to a more moderate level. Well, that will be then a good time for me to consider even taking a larger stake at that 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.