Portfolio - Dividends in Q1 2014

The first quarter of the year 2014 is almost over and hence I am checking the cash dividends that entered my bank account during that period.

My portfolio is rather small in size and so are the dividend amounts that were deposited. But despite the small amount of invested capital, I am already taking note of the dividend compounding effect. This effect reminds me of a seedling which is slowly, but continuously growing out of fertile soil - that is my portfolio. :-)

I could quickly ramp up my portfolio in size just for the sake of generating more dividends, but I prefer to keep a cautious attitude towards the stock market and to act with prudence and care. History proves that market crashs occur frequently and are difficult to predict. Against this background, I prefer to build up my portfolio constantly throughout a longer investment horizon. At the same time, I am hoping for a stronger market correction within the next one or two years in order to expand more aggressively while reaching a higher yield on cost.

Many investors claim that market timing is a complete waste of time. But I am following my gut feeling here and I feel more comfortable with a sort of anti-cyclical investment approach. Although it could well be that I need to be patient for a much longer time than originally expected.

Let’s have a closer look at dividends received in Q1:

There has been total dividends (net of taxes) of EUR 133 in Q1. The annual coupon of Ekosem was by far the largest amount followed by distributions of Seadrill and TICC.

Based on EUR 133 in Q1, I might be able to add a whole new position to my portfolio at the end of the year: If I assume a EUR 133 per quarter this adds up to EUR 532. With more portfolio additions to come in the next months I might be able to exceed this amount and reach some EUR 700 which is an acceptable basis for initiating a new position.

As the DAX dividend season is approaching, I am thinking about adding a few more DAX companies to my portfolio. Based on my recent stock analysis, my favorites are BASF, Munich RE, and Allianz. Prices for the three companies rallied pretty much in the last trading days. Same holds true for Unilever and AT&T, which I consider as other suitable candidates…

Stocks - DAX Preview

The DAX (German stock index) dividend season is approaching and in anticipation of the upcoming distributions I am currently screening the DAX for interesting portfolio additions.

One special feature of the DAX is that companies do not distribute dividends on a quarterly, but rather on an annual basis. Another characteristic is that 27 out of the 30 companies distribute in April or May. Only ThyssenKrupp, Infineon, and Siemens already held their shareholder meetings in January/February. Out of the three, which have already declared and distributed their 2013-dividends, only Siemens is relevant to dividend investors: ThyssenKrupp distributed no dividend at all this year and Infineon, as a tech-stock, returned only somewhat disappointing 1.5% to its shareholders.

While reading other blogs I follow, I came to the conclusion that many investors solely focus on US companies when building their portfolios. Of course, this is due to many reasons: For example taxes (25% withholding tax in Germany), foreign currency translation, the classical home-bias effect, or the less distinctive German equity culture compared to the US. The latter is also incorporated in the fact that there are no real German dividend champions like Coca Cola, which have a similar outstanding track record of more than 50 consecutive annual dividend increases. Companies here do not seem to put the same emphasis on a strong dividend track record and hence distributions are more volatile. As a result, they are often adjusted upwards and downwards following swings of the economic cycle.

All aspects described above play a role in the investment process of an international investor. That said, it is hard to forego US stocks when creating a global well-diversified dividend portfolio. On the other side, I believe that some exposure to Europe's pillar of stability does provide an added value to such a portfolio and is able to further enhance diversification.

Germany is among the top economies worldwide. It has a very broad and well-diversified economy with lots of industrial heavy-weights and competitive brands. Everybody knows the automotive brands BMW and Porsche for example. Against this background, adding German stocks to a global dividend stock portfolio should be viewed as a natural portfolio excercise.

Following the recent correction of the DAX and the Crimean referendum, which was held yesterday, there might be a good buying opportunity in the coming days. When reviewing the DAX on search for attractive dividend plays, I came across three particular companies I consider worthy to take a closer look at, both from a domestic as well as from an international investor’s perspective.


      1. BASF

 

• World’s leading international chemical company
• Current market capitalization of EUR 70bn
• S&P A+ investment grade rating
• 13x price-earnings ratio
• Healthy equity ratio of 43% as per end of 2013
• Annual turnover of EUR 74bn in 2013
• Net profit of EUR 4.8bn (6.5% margin)
• 52% projected dividend payout ratio in 2013
• Projected dividend of EUR 2.70 translates into a 3.5% yield at the current price
• Dividend was raised 15 out of 18 times since 1994 (from EUR 0.36 to EUR 2.70 in 2013)

    
    
      2. Munich RE

 

• World’s leading international re-insurance group
• Current market capitalization of EUR 27bn
• S&P AA- investment grade rating
• 9x price-earnings ratio
• Sector specific equity ratio of 10% as per June 2013
• Operating result of EUR 4.4bn in 2013
• Net profit of EUR 3.3bn (75% margin)
• 40% dividend payout ratio in 2012
• Projected dividend of EUR 7.25 translates into a 4.9% yield at the current price
• Dividend was raised 8 out of 10 times since 2003 (from EUR 1.25 to EUR 7.25 in 2013) 

    

      3. Allianz

 

• Among the top-3 international insurance groups
• Current market capitalization of EUR 55bn
• S&P AA investment grade rating
• 9x price-earnings ratio
• Sector specific equity ratio of 7% as per end of 2013
• Annual turnover of EUR 111bn in 2013
• Net profit of EUR 6.3bn (5.7% margin)
• 38% projected dividend payout ratio in 2013
• Projected dividend of EUR 5.30 translates into a 4.4% yield at the current price
• After dividend was cut to EUR 3.50 (2008) from a peak distribution of EUR 5.50 in 2007, the dividend was raised each of the last 5 years ever since