Portfolio - Mar 2015

Time is running away with me. Not only that I barely find time to post new articles, but yet again the DAX hit another all-time record yesterday: 12,375!. With stock markets rushing from one record to the next, it has become the biggest challenge ever to find value in the market to deploy capital. I am curious how I will master this exercise in the coming months… 

Anyway, it's time to have a closer look on the current state of my portfolio. This is my portfolio per end of March 2015:

Appreciation of the USD against the EUR has led to strong capital gains in my portfolio: Market value is 21% above historical cost. Average portfolio yield has significantly improved to 6.32%.  At the time when I bought my US holdings the EUR was much stronger compared to the USD, so I was able to get those stocks at a cheaper price. As dividends are paid in USD I now benefit from the stronger USD which is pushing my overall yield well above the 6% level. In consideration of Seadrill’s recent dividend suspension (leading to 0% dividend yield) this is a good development.    

On a stock-by-stock basis, Deutsche Post has further increased in value and represents my top holding with +110%. In the past months, Realty Income has also noticeably gained in value and has increased by 65% compared to its acquisition price. Seadrill is by far my biggest loss-making position with -70%. I have spent some time thinking whether I should dispose of this investment, but I decided to keep it and wait for better times. I believe the company could achieve a turn-around story in 1 or 2-years time, although the stock might never be able to return past dividend levels. On top of that I also do not believe that the oil price will stay at the present low level in the mid-term. So all in all, there are some potential upsides and I believe it’s too early to write this investment off.

It is also worth mentioning that I have added a new position to my portfolio: Global Dream REIT, a Canada-based office REIT with full exposure to the German office market. The purchase took place in March and a brief description will follow soon in the stock section.

Until then, keep on investing!

Portfolio - Dividends in 2014

With some delay I hereby publish my year-end dividend report for 2014. Finally time to check the cashflows to see how my dividend tree has evolved!

To put it bluntly: 2014 dividends could be way higher if I had invested more aggressively in the past years. The funds were there, but I was expecting a deep plunge of the stock market and therefore missed some good buying opportunities to build out my portfolio and boost dividend income.

Anyway, I am still satisfied with the EUR 606 that were earned in 2014. It’s a 40% increase to 2013 (EUR 431). Keeping in mind that I am pursuing a more conservative investment approach - with the general rule that no more than 30% of my total assets should be invested into the stock market - the result is still promising.

As a consequence of my strategy, I am sitting on a remarkable cash balance that added another EUR 404 of cash interest income (“Tagesgeld”) to my capital income. Against the background of an unprecedented low interest environment in Germany, this is quite an achievement.

In total, with EUR 1,010 for the year 2014, my capital income has now surpassed a symbolic mark of EUR 1,000.

I do well observe that my dividend income has been growing in the 3-year time period shown in the chart above. That holds true not only in absolute, but also relative terms, meaning as a share of total capital income.

One of my investment principles has always been to consider the ECB low interest policy when following an investment strategy. As long as I was able to get an interest of 1-2% on my cash holdings I was fine with a lower share of stock investments in comparison to my total assets. But since the ECB has gradually reduced the base rate from 0.75% in 2012 to currently 0.05%, my portfolio needed to be expanded to maintain an average return of at least 2% on total assets.

You might be asking why I am already satisfied with such a low yield and following such a conservative strategy. The reason is that I am not so much looking after a maximum return, but mainly aim at preserving or slowly increasing the value of my money. I want to stay liquid and keep all options open for the future, just for private reasons. It might well be that my girl friend and I will be buying an apartment or a house in 2 years time. Until then I don’t want to pump all my capital into an inflated stock market which could well plummet in the near future...

Stocks - BUY - AT&T

Long time no post. Sorry for that. I was busy and also lacking the motivation to edit new articles in the last months, but now I found some time and the motivation to carry on. There is some need to recap what has happened in the last months. So let’s start with new investments and portfolio changes.

I found a favorable time to get rid of my remaining E.on shares. When the company informed the market about its plans to split profitable and less profitable assets into two separate entities, the market received this as a positive signal. The price went up above EUR 15 in December, close to my initial acquisition price. So I decided to exit. In my opinion, there is no purpose to stay invested as shareholder in a company which reduced dividends repeatedly and which still finds itself in a transition phase.

After receiving the old funds, the stock of AT&T, which had been on my watchlist for quite some time, became fairly priced and so I decided to purchase 40 stocks for EUR 26.46.

AT&T is one of the two US telecommunication incumbents (the other being Verizon). It is the second largest provider of mobile telephone (after Verizon) and the largest provider of fixed telephone in the United States, and also provides broadband subscription television services.

Mobile data transmission has become more and more important in past years, reflecting the significance of smartphones in societies around the world. With the US market reaching saturation, AT&T has been expanding its footprint in Mexico and also awaits regulatory approval for its proposal to buy satellite TV company DirecTV for USD 48.5bn. The transaction aims at forming an integrated communications company with serious broadband reach and improved and more competitive bundled services.

I had my doubts about this massive acquisition price as mentioned in an earlier article. But strategy wise I believe this step makes sense, because revenue growth is slowing down and price competition is further increasing. 

At the same time, it is also worth mentioning that AT&T is part of the dividend aristocrat index, with a track record of more than 25 years (to be precise 30 years) of rising annual dividends. As such, I am not purely considering financial or strategic aspects, but also rely on the reliability and predictability of such a list.

At the time of the purchase, AT&T was providing me with a 5.50% yield-on-cost. Due to the current EUR devaluation in comparison to the USD, the yield-on-cost has further improved to 6.25%.

I take comfort in the stock also from the following facts:

• One of the two incumbent US telecommunication players
• Current market capitalization of USD 169bn
• Solid S&P A- investment grade rating
• Moderate 13x price-earnings ratio
• Healthy equity ratio of 30% as per FYE 2014
• Preliminary 2014 annual turnover of USD 132bn
• Preliminary EBITDA of USD 25.1bn (18.9% margin)
• Preliminary Net profit of USD 6.5bn (4.9% margin) – profit reduced in ‘14 due to USD 7.9bn of extraordinary pension expenses
• Expected dividend payout ratio of around 75% after DirecTV acquisition
• 2015 dividend of USD 1.88 translates into a 6.25% yield at given price and EUR/USD fx rate
• Dividend was raised 30 years in a row