MUCKLE-dividends

Portfolio - Mar 2015

noreply@blogger.com (Anonymous) — Sat, 11 Apr 2015 20:34:00 +0000

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

noreply@blogger.com (Anonymous) — Fri, 27 Feb 2015 18:32:00 +0000

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

noreply@blogger.com (Anonymous) — Wed, 28 Jan 2015 21:24:00 +0000

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

Stocks - BUY - BASF

noreply@blogger.com (Anonymous) — Fri, 24 Oct 2014 22:15:00 +0000

After a great summer in New York, I am back in Germany and back to my normal life!!!

The dip of the DAX in the past weeks turned out to be another good buying opportunity for me: After a disappointing release of the latest industrial production figures for the German economy and more reserved IMF growth forecasts for the global economy, the DAX lost almost 15% within just a few weeks: Down from a record of slightly above 10,000 back in July to slightly below 8,600 last week. In the meantime, we are back at a level close to 9,000. Overall, industrial stocks were among the biggest losers.

I felt it was a good momentum to put some cash into BASF which now ranges slightly below EUR 69. When the price fell below EUR 70 I felt that this is a fair value for the biggest chemical company in the world. On October 7th I collected 12 shares for EUR 69.67 providing me with a current yield-on-cost of 3.88%.

Unfortunately, the stock went further down to a level of EUR 65, which would have been even a better bargain. But, as usual, it’s quite difficult to time the market. After the stock slowly recovered back to EUR 70, it went 3% down again following the quarterly earnings release today.

Based on the earnings release, the Company cut its profit targets and abandoned its sales target for next year. Management signaled a weaker demand for basic, specialty and agricultural chemicals. According to the CEO “the reasons for this weak global economic development are obvious: Reduced growth dynamics of emerging markets and a delayed recovery in the European economy.” After all, BASF as a cyclical stock, is reflecting the state of the global economy and as growth prospects are weakening, so are the Company’s prospects.

I remain confident in BASF’s fundamentals and despite a slightly darker business outlook, I believe the Company is well prepared for any market scenario. Just to give an example: In 2009, the dividend was reduced by 13% (from EUR 1.95 to EUR 1.70), but it was quickly raised again in the following years. Investors holding on to the stock during the financial crisis were rewarded with more than 12% annual dividend growth ever since.

As of today, BASF represents one of the rather small positions within my portfolio. It's considered to be a cyclical investment and based on the somewhat unclear overall market situation, I am of the view that it’s better to be a bit cautious and keep some more room for further additions. That said, I believe, the Company remains one of the candidates that could be worth injecting some more money when times get rougher.

I take additional comfort in the stock based on the following:

World’s leading international chemical company
Current market capitalization of EUR 63bn
S&P A+ investment grade rating
12x price-earnings ratio
Healthy equity ratio of 43% as per FYE 2013
Annual turnover of EUR 74bn in 2013
Net profit of EUR 4.8bn (6.5% margin)
50% dividend payout ratio in 2013
Dividend was raised 15 out of 18 times since 1994 (from EUR 0.36 to EUR 2.70 in 2013)
Added 12 stocks for a price of EUR 69.67 generating a yoc of 3.88% based on 2013 dividend

Portfolio - Jul 2014

noreply@blogger.com (Anonymous) — Sun, 10 Aug 2014 17:33:00 +0000

I am lagging in schedule for my semi-annual portfolio reporting so I am trying to catch up a bit today. I have been on vacation in July and there has been a change at work which required some more organizational work than usual. I was asked quite spontaneously to join our New York office to help out a bit for the next 2 months. I flew over last week and now live in a furnished apartment in Midtown Manhattan, not far away from Central Park where I will be able to enjoy summer and early spring in THE capital of the Western world. Life is treating me well at the moment!

Apart from the changes at work, this year has been rather quiet so far in terms of portfolio evolution and dividend investments. As I still believe in a more anti-cyclical investment approach, and not so much in a pure dollar cost-averaging (at all costs), I have been rather cautious so far. I missed the biggest part of the stock market rally, but also didn’t have that much funds to invest in 2011/12 since it’s not too long ago that I have just started my working life.

The first half of the year went by very fast and there has been only P&G and Glaxo which were added to the portfolio in June and July respectively. This is my portfolio as per 31 July 2014:

The portfolio is doing pretty well at the moment and reached a gain in market value of ca. 15% before the recent correction. As per end of July, I’m 9% or EUR 1,058 ahead. On a stock-by-stock basis, Deutsche Post (+74%) is leading in terms of capital appreciation, followed by Royal Dutch Shell (+24%) and Realty (+11%).

Overall portfolio yield hasn’t changed much. It still stands at around 6% which represents my portfolio's target yield. I realized that I have accumulated quite a few positions which return more than 5.50% yield. In general, I believe this is a very attractive yield as entry price for a blue chip.

Since my last post in January, I reduced my position in E.on as the company is struggling a bit at the moment. I sold 30 stocks at a price of EUR 15 and incurred a negligible loss. It didn’t make sense to have my largest portfolio holding in E.on and that’s basically the only reason for that move.

Hopefully, the market correction will continue. This would allow me to buy into more positions. AT&T, HCP, and Capitamall are all stocks on my watchlist which are currently close to a 5.50% yield. Based on 2-3 more additions, I would be getting close to an estimated annual dividend income of EUR 800. Above that threshold, 25% German withholding tax will come into play and reduce dividend return.

Let’s see if more buying opportunities will arise in the coming weeks.

Stocks - BUY - GlaxoSmithKline

noreply@blogger.com (Anonymous) — Sun, 27 Jul 2014 18:13:00 +0000

It took several months until I pursued another investment in June (P&G). Loaded with funds, my watchlist has finally triggered another buy recommendation on Friday:

The stock of the global pharmaceutical player GlaxoSmithKline (“GSK”) was strongly oversold (-5% price drop) on Wednesday after a disappointing Q2 earnings release:

Group sales in Q2 declined 4% year-over-year (on an ex-divestment and currency adjusted basis) due to significant generic competition and an ongoing bribery investigation in China, which adversely impacted Emerging Markets sales growth. Profitability measured by earnings per share was down 12% (on an ex-divestment and currency adjusted basis) following pricing and contracting pressures.

Overall, results of GSK were well below expectations with both earnings and revenues missing consensus estimates. Following the Q2 release, GSK no longer expects any sales growth in 2014. Furthermore, GSK expects 2014 earnings to be broadly in line (on an ex-divestment and currency adjusted basis) with last year results.

Mr. Market punished GSK very hard for this disappointing quarter. During last week, the stock lost almost 8% in value in only three trading days. The price fell from EUR 19.75 to EUR 18.20.

While I am not satisfied with GSK’s earnings results either, I nevertheless tend to believe in the stock and its dividend potential. Even if one can raise doubts about the stock’s potential as a dividend growth holding - which I believe is an arguable statement as well given the successful dividend growth track record - the current high yoc of above 5.50% qualifies the stock as an attractive income holding.

I take additional comfort in the stock based on the following key facts:

Among the top ten largest global pharmaceutical companies in the world
More than 12 years of consecutive annual dividend increases
Market capitalization of ca. EUR 100bn
A1 investment grade Moody’s rating
Sales of GBP 26.5bn and operating profit (EBIT) of GBP 7bn (26% margin) in FY 2013
Net profit (after taxes) of GBP 5.6bn (21% margin) in 2013
Ca. 70% dividend payout ratio
Slightly low equity ratio of 19% but comfortable Total Net Debt / EBITDA of 1.5x
Added 55 stocks at EUR 18.34

Portfolio - Dividends in Q2 2014

noreply@blogger.com (Anonymous) — Wed, 02 Jul 2014 20:31:00 +0000

Second quarter of the year 2014 is over and down below you find a summary of the dividends I received during the period.

The portfolio hasn’t changed much in comparison to Q1, but dividends in Q2 are still a bit higher. This is due to the one-time payments I received from the DAX companies Deutsche Post and E.on. As already explained earlier, German companies prefer to reward their shareholders on an annual basis. Therefore, Q2 is not comparable to other quarters of the year. Most investors prefer receiving dividends on a more frequent basis, but I actually don’t mind receiving annual distributions as long as my annual passive income is increasing year by year.

Total dividends received (net of taxes) add up to EUR 159 in Q2. The Deutsche Post dividend represents the largest distribution with EUR 64, translating into a 5.78% yield on cost.

I do hope that there are more buying opportunities in the second half of 2014. At the moment, I am struggling to find reasonably priced stocks and as a result there hasn’t been many investments in 2014 so far. This is a drag on the dividend growth potential of my portfolio and I wouldn't like to have such a situation for the rest of the year.

Stocks - BUY - Procter & Gamble

noreply@blogger.com (Anonymous) — Fri, 20 Jun 2014 21:32:00 +0000

Yesterday, I added a position in P&G to my portfolio. The stock reached a yield-on-cost of 3.25% and triggered a buy-recommendation on my watchlist. At given yield, I feel comfortable adding this rock-solid blue-chip to my portfolio. I bought P&G at EUR 58.50 which I believe is a fair price. It’s not a bargain, neither it’s overly expensive. Aside from the satisfactory yield, I deem this to be a good investment towards achieving a higher diversification and a more investment-grade character of my portfolio, also when considering the relatively high portion of high-yield investments in the portfolio. The shift towards more stable companies is also underlined by the consumer product sector now being the largest sector within my portfolio.

I must admit that since my last stock purchase (Seadrill) in February, I was having a hard time deciding where to deploy capital. Looking back at the first half of 2014 from today’s angle, there have definitely been some buying opportunities when Dow Jones and DAX incurred a minor correction in February and March. However, for some reason I don’t remember anymore, I missed this opportunity. That’s too bad, because since then stock markets broke one record after the next.

In parallel to the stock market rally, the ECB base rate recently hit another all-time low of 0.15% which I perceive as nothing else than a raid on my savings account. With a current outlook of several years of low-interest policy to come, I decided to buy another stock position. But, as already mentioned above, it’s not only the ECB policy which was supporting me in this decision:

One of the top globally diversified consumer products companies in the world
Exposure to emerging markets (40% of total sales)
More than 55 years of consecutive annual dividend increases
Market capitalization of ca. EUR 236bn
Aa3 upper investment grade Moody’s rating
Sales of USD 84bn and operating profit (EBIT) of USD 14.5bn in financial year 2013
Ca. 60% dividend distribution ratio
Comfortable Equity ratio of 50% and moderate Total Net Debt / EBITDA of 1.4x
Added 20 stocks at EUR 58.42

Stocks - The desperate search for value in today's markets

noreply@blogger.com (Anonymous) — Tue, 27 May 2014 19:32:00 +0000

This is just to give a short update on the current situation: I am loaded with funds (the fruits of my work efforts in 2013) and I have done my homework and pre-screened the market for attractive stocks. As I wrote in my previous post, I am ready to pull the trigger. At the same time, I am a bit puzzled about new record stock valuations and the rising number of M&A transactions in the market.

AT&T is currently yielding a bit more than 5%, which is okay, but not the yield on cost I am expecting for such a low-growth investment. In my opinion, this lies more in the area of 5.75%-6.00% in line with management guidance as to at which price they would start buying back shares. In addition, there is also uncertainty with regard to the added value of AT&T’s recent USD 49bn-acquisition of DIRECTV. Impact on shareholder value of the transaction is not so clear to me and a price of USD 49bn is anything, but cheap. In fact, mergers and acquisitions are often rather value destroying instead of value enhancing for shareholders of the acquiring company. At current market valuations, I could well imagine that AT&T is paying way too much in any case. That said, this investment at given yield seems not so attractive to me at the moment.

Next company on my watchlist was Pfizer. At least it was before the latest announcements in the news. Originally, my rule of thumb was to start adding at a yield on cost of 3.5%. Then I read about the lack of growth and the negative Q1 results. Given the sheer size and profitability of the company, the stock still seems okay to me and therefore this info is not a deal-breaker per se. I still feel confident in Pfizer’s research and management capabilities and the fundamentals of the company remain rock-solid. What is more worrisome is the current M&A activity in the sector. A lot of companies are currently looking for an-organic growth opportunities. Prices discussed for recent acquisition targets are beyond good and evil and, unfortunately, Pfizer is leading the magnitude of outrageous take-over offers with a final USD 106bn-offer for AstraZeneca. No matter if the deal is ever going to be signed, the impact on shareholder value and the company's fundamentals could be huge. Against this background, I am not really positive about the stock and its prospects anymore. So this is not an option at the moment.

Next one on my list is HCP or Capitamall Trust. Both companies are REITs and my rule is to start adding at a yield on cost of 5.5%. Aside from the fact that this yield seems currently out of reach, I feel that I should rather start adding blue chips to my portfolio instead of increasing the share of REITs. However, due to the lack of other investment opportunities I feel that picking one of the two is a satisfactory option. Therefore, they remain as a priority pick on my watchlist.

Unilever was another option on my list. Not long ago Unilever was considered cheap: In February, the price came close to EUR 27 with the stock offering a yield of approximately 4%. However, the picture has changed in the meantime and the stock is now close to EUR 32 offering only some 3.5%. This entry price is too high to me and hence I am waiting for the next correction.

Next one was Allianz, BASF, and Munich RE. Similar to Unilever, all options have ceased due to the DAX (and with it the three stocks mentioned) reaching new highs in the last trading days. As annual dividend payment dates for all three stocks have passed in the meantime, it doesn’t make sense to add now and wait for another year to receive the dividends. Much could happen during this time. To me, particularly the price of BASF is entering highly speculative territory and I wonder how much higher the price is going to get. That said, all stocks are currently no longer options.

Now, what conclusion can I draw from my thoughts above? Blue chips are currently more expensive than ever before. It is getting more and more difficult to find value in the market. In my opinion, there are clear signs that there is an asset bubble in the market. This might be the time to lean back and wait for the next correction. On the other side, there are no alternatives to stocks as the ECB is expected to release another landmark in the history of monetary policy during the next days. The next announcement is likely to pave the way to even higher market records as Draghi seems to be willing to fight the deflationary tendencies within the Eurozone. I am a bit clueless what I should do, but will keep you posted about any portfolio developments.

Watchlist - Apr 2014

noreply@blogger.com (Anonymous) — Sat, 12 Apr 2014 19:30:00 +0000

Given that I have posted my first and so far last watchlist report back in Aug 2013, I thought it is time to provide an updated version, which highlights what type of companies I am following at the moment. I am ready to pull the trigger, but prices for almost all of my targets have again risen considerably in the past weeks.

Let's see if I still find a good buying opportunity in the next weeks. I will stay tuned and keep you posted about any new developments...

Portfolio - Dividends in Q1 2014

noreply@blogger.com (Anonymous) — Mon, 31 Mar 2014 19:25:00 +0000

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

noreply@blogger.com (Anonymous) — Mon, 17 Mar 2014 07:47:00 +0000

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

Market - Feb 2014

noreply@blogger.com (Anonymous) — Fri, 28 Feb 2014 18:20:00 +0000

I don’t know how you feel about it, but occupied with my daily job the 2 months of the new year went by so fast and 2013 seems already so long ago. I guess, same holds true for my last market update, which dates back to October 2013. Originally, I had planned to write new articles about market developments every 2 months, but I think it makes sense to be a bit more flexible with that rule. Sometimes, there are just too few things to report and sometimes my life just doesn’t allow for more frequent posting activities.

When looking back to my last article in October, there are quite some news and developments to report since then, in particular in regard to the US market.

It begins with Bernanke finally announcing to start with tapering the Fed’s bond buying program by USD 10bn per month, down from USD 85bn to USD 75bn starting with January 2014. Originally, markets feared a cut-down of the program, but the Fed’s commitment to leave the interest rate at its all-time low for a longer period of time led to general market reliefs. In the last days of 2013, the Dow Jones managed to climb up to a new all-time high of ca. 16,600. Since then, there was a minor correction back to a level of 15,400 in the first days of February. This was subsequent to disappointing US manufacturing data and uncertainties in relation to the Fed’s strategy going forward. In the end, Janet Yellen’s first speech as successor to Bernanke and new chairman of the Fed was positively perceived by the market.

Yellen is known to be a strong supporter of the current policy of quantitative easing and I expect her to stick to this inflationary policy for a while longer. Still, I am curious to see how this policy will evolve over time and how the US and other western economies will try to ascend from the depths of the financial crisis. The US is and will always be a particular case in this regard since it is a benchmark for the global economy and a raw-model for all western economies, which are still impacted by ailing public finances. The way the Fed deals with the US debt burden is exemplary itself as it relies solely on a policy of cheap money to stimulate the economy and reduce unemployment.

To the contrary, the ECB is required to implement fiscal rules for all EURO member states and even request structural reforms from the weaker economies in exchange for financial support. Interestingly enough, but the Fed seems to be the one which is currently making more progress, having almost reached its labor market goals (unemployment rate < 6.5%) and having started to taper further down to USD 65bn as per February 2014. One could therefore argue that the Fed is already in the process to tighten its monetary supply, although it is still a bit early to say that.

Whether this monetary strategy alone, without the encouragement of structural reforms, will be a success story is written in the stars. After all, the US Senate managed to pass a 2-year budget deal in December to ease automatic spending cuts and reduce the risk of a government shutdown. Against this background, it remains to be seen whether the US is on the right way to regain control of its public finances or whether it follows a simple and unsustainable strategy, which metaphorically can be well described as ‘kicking the can further down the road’.

As mentioned above, both the economic conditions of the ‘EURO-zone’ as well as the achievements of the ECB lag behind those of the USA and the Fed. However, this has more or less to do with the very foundations of the EURO-zone, i.e. its complex institutional structure and cultural diversity. The DAX, as a mirror of a German economy, which is currently working like clockwork, is therefore not a good benchmark for the EURO-zone as a whole. From a German perspective, the last reduction of the base rate down to 0.25%, announced by Draghi in November, sort of came as a surprise, even though it makes more sense within the wider EURO context.

This step sustainably pushed the DAX further up to new records above a level of 9,000. Due to the current deflationary tendencies within the EURO-zone, it is not unlikely that we will see another reduction of the base rate in the next months. This time, however, it would reach the critical level of 0% and could be interpreted as the very last portion of gunpowder in Draghi’s gun. This in mind, I currently do not see any alternatives to the stock market and therefore I stay invested while slowly increasing my exposure to the market proportionally to my savings rate.

While the upward trend of the Dow Jones and the DAX remain intact, the STI already left an upward trend channel during summer 2013 and regularly tests support levels at around 3,000 points. The Fed announcement on 22 May to begin tapering soon rang in a stronger correction of the STI, which has not recovered since then. In fact, the STI is currently tumbling up and down, being affected by fears about foreign funds continuing to flee out of Asia and the emerging markets.

To me, Singapore and the STI remain attractive. I would consider adding more exposure, but before I am in a position to do that, I need to keep an eye on my savings. Maybe, there are more opportunities soon when my 2013-bonus flows into my account...

Stocks - BUY - Seadrill

noreply@blogger.com (Anonymous) — Sun, 09 Feb 2014 13:31:00 +0000

I have been following stock articles on Seadrill for quite some time and as the stock price dipped in the past weeks, I decided to add some exposure to the industry in the context of recent portfolio rebalancing activities. I am aware that Seadrill is a high-yield investment with considerable risk similar to TICC and Ekosem, but to me the dividend yield of around 10% represents an adequate risk premium.

Seadrill provides offshore drilling services to the oil and gas industry on a global scale. The company owns and operates one of the youngest fleets by age within the industry, comprising 64 offshore drilling units and 23 more units under construction. Its business model is very capital intensive and as a result the company incurred significant amounts of debt in the last years. While Seadrill showed substantial growth and rising dividends in recent years, it still finds itself within a ramp up phase therefore regularly funding distributions from a mix of operating cashflow and debt financing.

Whereas the industry, just like the oil price, is very cyclical in nature and therefore adding more volatility to my portfolio, Seadrill’s order backlog amounts to ca. USD 20bn which is quite impressive given the ca. USD 3.8bn of revenues within 9M 2013. This strong order backlog provides investors with some mitigation to potential external shocks.

2nd biggest provider of offshore drilling services (after Transocean) with global footprint
4 consecutive annual dividend increases
Market capitalization of ca. USD 17.3bn
No rating issue by S&P/Moody’s/Fitch
Acceptable equity ratio of ca. 28%, but aggressive Total Net Debt / EBITDA of 4.8x
Added 32 stocks at price of EUR 28.68 generating a yield of 9.7%

Dividend history of the company is not very long due to its very recent inception in 2005 and there are definitely some doubts about distribution sustainability, but even if the currently very high dividend yield of > 10% got cut, I believe that it would remain within an acceptable range for a non-investment grade investment. I am aware that this stock is not the best fit to a dividend growth strategy, but nonetheless I consider it to be a great addition, also when considering its impact on total dividend return of my portfolio.

Stocks - BUY - Philip Morris International

noreply@blogger.com (Anonymous) — Fri, 07 Feb 2014 20:01:00 +0000

My year-end portfolio review led me to the conclusion that there were some stock positions in my portfolio which turned out to have problems with their business models, be it in the sense that they were hit by external market forces or had to undergo a fundamental change of their business model. In many cases, such characteristics are associated with stagnating dividends or even dividend cuts. Both features do not fit to the concept of dividend growth investing. I therefore felt that it is time to do some portfolio rebalancing.

As indicated in my article in January, the above mentioned characteristics exactly describe the developments of K+S and Intel. Besides the realignment of their business models, both companies are also rather cyclical in nature: K+S, being a producer of potash, depends on a great number of external factors such as general economic conditions, cyclical trends in end-user markets, supply and demand imbalances, weather conditions, and last but not least the potash price itself. Intel, simply being active in the technology sector, the most cyclical of all sectors.

I decided that the next investment should provide some exposure to less cyclical sectors like consumer products. While the usual suspects like Coca Cola, Procter & Gamble, and Johnson & Johnson trade at substantial premiums and feature rather modest dividend yields of 3% or below, I turned to the tobacco industry and its global player Philip Morris, which currently generates a yield of > 4.5%.

As can be seen in the chart below, the recent correction represents a good opportunity to buy this solid blue chip:

Biggest producer of cigarettes worldwide with almost 30% global market share
Exposure to mature & emerging markets: Western Europe, EEMA, Russia, Asia, Latin America, Canada, etc.
5 consecutive annual dividend increases
Market capitalization of ca. USD 120bn
S&P A investment grade rating
However, negative equity and high leverage but this seems to be not so unusual for this industry sector (still need to further investigate why this is so!)
Added 20 stocks at price of EUR 61.33 generating yield of 4.5%

Although the company recently reported some anticatalysts for further growth like higher governmental taxation, low-priced competition, challenging regulatory laws and illicit consumption, I am still of the opinion that the fundamental trend of PM remains intact. Even if growth conditions in some of its mature markets like Western Europe do not look favorable at the moment, PM has still the power to offset declining revenues in its overly regulated markets through organic growth and acquisitions in emerging markets. This characteristic holds even during recessions as people do not cut down expenses for everyday products like cigarettes…

Portfolio - Jan 2014

noreply@blogger.com (Anonymous) — Sun, 26 Jan 2014 15:39:00 +0000

As already explained in my last post end of December, price losses and dividend cuts for K+S gave me quite some headache last year. The recent upward trend of the stock represented and opportunity to exit this investment. I sold 17 stocks at EUR 22.50 and reduced my exposure to EUR 1,000 already at the end of 2013. Right after that the price went further up to EUR 26.00 and therefore I decided to enter a stop loss order at EUR 25.00 to sell the remaining part. The order was executed on the same day so the remaining 30 K+S shares left my portfolio as well.

Overall, the K+S investment resulted in a 28% loss and has cost me EUR 439, but I decided that it is better to cut losses and use the funds for other investments.

Intel was the other candidate which I considered selling in December. When the company reported its Q4 results on 16 January, many analysts were not really delighted about the results: For FY 2013, the company reported USD 52.7bn in sales (down 1% yoy) and a USD 9.6bn profit (down 13% yoy). Forecasts for 2014 show that management is basically expecting a flat 2014. Dividends for 2014 are also expected to be held constant at 2012/13 levels. Given these key data, Intel's stock price went down more than 4% within the same day from an interim high at EUR 19.74. Intel fights against declining PC sales, which used to be its core business segment, and still finds itself within a transitional phase to mobile devices.

I decided to exit at EUR 18.74 and took a EUR 200 profit with me which compensated me for my K+S losses. In my view, it still remains to be seen if Intel's mobile play can come out to be a profitable venture and it can take much time until that happens. Given that Intel is a rather cyclical stock and the bullish market atmosphere which could also well change in the course of 2014, I thought it is better to exit and use the funds for other investments.

That said, I entered into two new positions: 20 stocks of Philip Morris International at price of EUR 61.33 and a yield of 4.5% and 32 stocks of Seadrill Ltd. at a price of EUR 28.68 and a yield of 9.7%. Basic investment considerations for entering into the positions will follow soon in the Stocks section.

New portfolio composition is shown below:

In comparison to December 2013, expected dividends for 2014 increased from EUR 539 to EUR 612 due to the higher portfolio yield of 6.20% in comparison to previous 5.48%. This particularly has to do with the replacement of low-yielding K+S by high-yielding Seadrill as total invested capital remains almost the same. Interestingly, despite the higher yield I feel more comfortable with the new composition of the portfolio. I do hope though that this is not only a feeling...

Portfolio - Dec 2013

noreply@blogger.com (Anonymous) — Tue, 31 Dec 2013 13:42:00 +0000

We are coming close to year-end and like for every dividend blogger out there, it is also time for me to review my portfolio and draw some conclusions:

- Total collected dividends in 2013: EUR 406
- Expected dividends for 2014: EUR 539
- Current book value: EUR 9,842
- Current gain in market value (MV): EUR 539.

There have not been any changes to the portfolio in comparison to Jun 2013 except for some trading activity on part of K+S and Realty Income. Realty was added to the portfolio in early December and in my view, it was attractively priced at EUR 29 (see latest post). My K+S exposure was reduced yesterday as it represented the largest position of the portfolio and was simply over-weighted given its price collapse in 2013. I sold 17 stocks at a price of EUR 22.25 and incurred a loss of EUR 189.

One can always argue whether waiting for a full recovery is the better strategy, but I concluded that I do not have any clear insight into the fertilizer market and that the chances of the market to find back to its cartel-like structure are difficult to assess. The fact that the conflict between Uralkali (Russia) and Belaruskali (Belarus) has also a political dimension does not make this assessment easier. I am convinced that the current exposure of EUR 1,000 fits much better to my overall portfolio.

I can well imagine following the same approach for E.on as well, but at the moment I still see more potential for this one, even if it might take considerable time to unlock it.

Intel is another candidate which could be worth selling. Not only would I incur a profit of +17%, but I could also replace it with a more stable company with similar yield like Philip Morris for example.

Clear winner this year is Deutsche Post which almost doubled (+91%) in value since beginning of 2012. I expect the dividend to be raised from EUR 0.70 to EUR 0.75 which is well in line with the concept of dividend growth investing.

Overall portfolio yield stands at 5.48%, slightly lower compared to the 5.69% as per June 2013. This is mostly due to the forecasted reduction of the K+S dividend and the USD/SGD/GBP depreciation against the EUR which had some negative impact on dividend distributions of Intel, TICC, SingTel and Royal Dutch Shell.

What are my goals for 2014? This is simple:

1. Write more articles
2. Closely monitor the market situation
3. Further grow the portfolio by 3-5 investments
4. Be patient and wait for the right investments

Happy new year to everyone! :-)

Stocks - BUY - Realty Income

noreply@blogger.com (Anonymous) — Fri, 27 Dec 2013 19:11:00 +0000

There is one new position to report which I added to my portfolio in December. This was actually against my recommendation not to enter the market at current prices (see Market – Oct 2013). There was, however, one fundamental change in November which allowed me to act against my own recommendation: This was Draghi’s announcement to once again reduce the base rate (from 0.50% to 0.25%). This step represents another cut-back on my savings account and as a result I freed up more resources for additional dividend investments.

In the past weeks the stock price of Realty Income came down to a level of EUR 30 (USD 40) and was within an acceptable range. Hence, I entered at EUR 29. Timing could have been better as the price went even further down to EUR 26.60. But, as usual, you never get the cheapest entry point.

Many experienced dividend investors are currently discussing the impact of Fed tapering and are more defensive towards investments in REITs. As a long-term investor I remain confident in Realty’s business model and its track record:

- Equity REIT (no mortgage REIT)

- Portfolio of 3,800 commercial properties across the US

- 74 consecutive dividend increases

- Market capitalization of USD 7.4bn (largest US commercial REIT)

- S&P BBB+ investment grade rating

- Equity ratio of 60%

There are many articles and lots of extensive stock analysis on seeking alpha and other websites so I refer to these sites for a detailed analysis.

I hold no position in this stock or in the sector and deem a yield of 5.50% attractive enough as entry price. 43 stocks at EUR 29 are enough for now. Further additions are possible if considered suitable from a portfolio perspective.

Real estate - Financing aspects

noreply@blogger.com (Anonymous) — Thu, 26 Dec 2013 11:54:00 +0000

In part 1, I concluded that a real estate investment cannot be separated from its financing aspects.

In order to dig deeper into this matter and put some hard facts behind my reasoning, I calculated some annuity schedules at a 3.25% p.a. interest rate and an annuity of EUR 1,400 for different debt levels in a range from EUR 150,000 to EUR 425,000. For simplicity, I chose an annuity of EUR 1,400 as this is my current rental expense per month.

Then I drew a chart of the results with loan life (final repayment date of the loan) on the x-axis and loan balance on the y-axis. The result is shown below:

An annuity always consists of a repayment amount and an interest portion which, of course, is bigger in the beginning of the repayment phase as the borrower is paying interest on the fully-drawn loan.

The chart shows very well how the interest compounding effect works:

Although debt is raised by the same amount of EUR 25,000 for each curve, the distance between the curves on the x-axis (i.e. loan life) is continuously increasing. The difference in years between the curves is displayed in the colored scale to the right of the chart.

The described effect is similar to a dividend growth strategy only that it works in the opposite direction. To be more clearly, the interest compounding effect works against the borrower and it works even stronger against the borrower, the more debt he borrows.

That said, I colored the various curves on a scale varying from dark green (healthy financing) to dark red (unhealthy financing) to indicate which loan amount, in my view, is affordable given a monthly annuity of EUR 1,400.

My conclusion is that the compounding effect becomes critical at a repayment horizon of ca. 30 years. But even at shorter horizons, the interest portion as part of total debt service is already significant. It actually makes you kind of sad to see the huge amounts paid in form of interest expense during the loan life. The chart below shows the exact proportions of the interest and repayment components:

Given the figures above, it becomes clear that a loan life of 30 years is acceptable, but carries already a significant interest burden on the borrower’s side. If possible, it is therefore advisable to use shorter repayment horizons for loans. Personally, I deem a loan life of ca. 20 years (ca. 75% repayment and 25% interest portion) as balanced and therefore appropriate for my own considerations.

Based on this result and an annuity of EUR 1,400 it is apparent that my maximum loan amount is capped at EUR 250,000-275,000. If I assume and equity portion of EUR 150,000 to be accumulated by my mid-thirties this adds up to a total investment of EUR 400,000-425,000. Unfortunately, these prices are not achievable for a terrace house in the Munich area in the foreseeable future.

Of course, at the age of 30 I have some more room for financial leverage as there should be a few salary increases ahead. But on the other side, this additional income will probably be directly consumed by my future kids and family :-). So I am on the safe side staying with my EUR 1,400.

Getting back to my colleague’s investment, it is rather clear that with an acquisition price of EUR 550,000 and a EUR 125,000 of equity, he is pretty much damned to repay his loan for the next 35 years. What that means in terms of interest burden should be clear by now. Even if his financial strength, represented by the amount of his annuity, is higher than mine by some hundred Euro this is still not enough to repay below 35 years. Tables below show some sensitivity analysis in this respect:

In addition, he has a 3.50% p.a. fixed interest rate agreement while I am assuming 3.25% p.a.. This indicates that his loan life might be even higher than 35 years.

So, what are the conclusions from the calculations and arguments explained above?

- I will not buy any real estate in the Munich area at current prices (moving away from Munich to a more favorably priced city could make sense in the mid-term).

- I still have a long way to go to reach my goal of EUR 150,000 of required equity
- I will stick to my dividend income strategy and hopefully this strategy will help contributing towards achieving this goal

Real estate - Basic considerations

noreply@blogger.com (Anonymous) — Fri, 20 Dec 2013 18:04:00 +0000

A couple of days ago a colleague of mine proudly reported that acquiring his own property was one of his best investment decisions in life. In 2010, he paid EUR 550,000 for a rather basic terrace house in the outskirts of Munich. He financed the acquisition through EUR 125,000 of equity and the remainder through a mortgage loan at a 3.50% p.a. fixed rate. He was very proud of his investment. To me paying off a loan for the rest of my life appears not so promising. Who knows what will happen during such a long period of time!?

I have been asking myself for some time now whether my dividend income strategy is really superior to a regular real estate investment. The reasons for not having considered such an investment so far were rather practical in nature:

First of all, with 4 years of professional experience I still consider myself to be a job starter. Being flexible and not put on the chain has been very important for me in today's fast-paced work environment. Secondly, prices for real estate in German cities (and particularly in the Munich area) dramatically increased in the past years. They swiftly reacted to the ECB monetary policy of low interest rates. As a consequence, it takes more time to build up the equity required to be granted any mortgage loans. Of course it might also be possible to pursue a real estate investment without any equity at all. Whether this is a good and sustainable way forward is, however, another thing.

When I turned 30 last month, I felt that it is time to reconsider my personal situation and review my investment goals. Lets give more thought into this.

What are the pros and cons of either strategy?

1. Dividend income

+ continously growing return on investment if long-term dividend growth rate is positive

+ diversification across various sectors and geographies

+ investment amounts can be randomly split across assets

+ real estate exposure can also be achieved via investment in REITs

+ moderate risk concentration

+ hedge against inflation

- considerable tax impact (25% witholding tax (Abgeltungssteuer) on interest and dividend income)

- regulatory risk / risk of financial repression (higher taxes, extra duty)

- high variation in market value during stock market turmoil

2. Real estate

+ appreciation of property value if asset location has a positive long-term outlook

+ saving of monthly rental expenses

+ interest on loan is tax deductible if asset is rent to 3rd party

+ hedge against inflation

- no diversification across sectors and geographies

- high risk concentration

- difficult to split up the investment

- interest burden (paying interest on any loans which is not payable when renting)

- considerable tax impact (3.5% land transfer tax (Grunderwerbsteuer))

- regulatory risk / risk of financial repression (higher taxes, extra duty)

- limited mobility

I am sure I missed out some aspects of each investment strategy. Nonetheless, it seems that given my current personal circumstances a dividend income strategy has more advantages compared to a real estate investment.

However, there is one aspect which is worth to highlight: My girl-friend and I currently pay EUR 1,400 per month of rental expenses for our 3-room apartment. I consider this as money thrown out of the window. Wouldn't it be better to buy a property, really own something, and pay-off a mortgage loan instead? In my view, saving the rental expense is a real advantage of real estate even though I would have to invest all equity into such a new project at once. I could still start all over again with my dividend income strategy in parallel once this investment is made.

You might be asking 'why is he still hesitating then?' Well, main reason is the following: As I wrote in the beginning, prices in the market have exploded since 2009. I would even say that prices in Munich increased faster than my personal savings rate throughout the last years. This does not mean that I did not save enough, but rather that there was a run into real estate due to the low interest environment.

Experts believe that there is no real estate bubble in German cities, but I deem real estate prices of 30-35x of annual rental income in the Munich area as over-priced. At this price levels, I would have to finance a very large portion of the acquisition price through loans.

This is the critical point here: While the interest compounding effect in a dividend income strategy works for me, it works against me when I take on a loan.

Now, what does that mean in detail? How can I make sure that the financing is still bearable? Of course, I do not want to drown in financial indebtedness.

Lets have a closer look into this in part 2.

Market - Oct 2013

noreply@blogger.com (Anonymous) — Fri, 01 Nov 2013 22:52:00 +0000

It is time for another market update. Following my August post, I decided not to invest in SingTel and Capitamall and leave my portfolio as it. This did not have to do with the two companies' fundamentals, but rather with general market conditions. Although I have accumulated quite a significant amount of cash reserves, I am of the view that markets have already gone too far. I will therefore stay invested, but will not add any major positions to my portfolio for now.

In the current environment, there are still no alternatives to stocks, but I feel that I was long too late and already missed the biggest part of the rally. In my view, the risk of a market correction is too high and it outweighs the bit of extra return from another investment.

Let’s have a look on the stock indices of my core markets. What has happened since August?

There were German elections in September with the outcome of a great coalition between Christ Democrats (Merkel) and Socialists. Both parties support the EURO policy and will hold a large voting majority (504 of 631 seats) in the Bundestag. Any objections from opposing parties (the Greens and left-wing communist party with together 127 seats) will have no impact on the country’s politics.

Markets are relieved that the newly founded German anti-EURO party did not make it into the Bundestag. Just like the Liberals, it remained below the 5% threshold with still remarkable 4.8% of total votes. I would have liked the idea of having one party in the Bundestag questioning the EURO policy – even though this would have caused market consternation.

Anyway, it is how it is and as long as there are no exceptional bad news from Southern Europe, the DAX will remain dependend on the Dow Jones which in turn is stimulated by the Fed policy.

This leads us to my next core market, the US. After rumors about a war conflict in Syria, Obama follows a diplomatic approach and now relies on the U.N. to put Assad’s chemical weapons under international control. For the moment it seems as if the risk of a new war conflict is banned.

What about the Fed? Well, as if I already felt it in my last update, the Fed delayed bond tapering as it believes the US economy still needs support. In the end, everything will stay as it is. Nobody expects a slow-down of the USD 85bn monthly stimulus to the US economy still within 2013. For the moment, it seems likely that the Fed stimulus will be maintained for a much longer time. Even if it will be reduced within 2014, I wonder how much longer it will take to completely end it. And more importantly, how will markets react when the Fed announces it will cut or even end the stimulus?

Another factor that has caused market fears was the US government shutdown in October and the potential of a US sovereign default. I did not even had this on my agenda and I guess most people already forgot the last time when a similar situation occurred back in April 2011. Although almost no one expects an US default to occur, there is still no visible solution to the US sovereign debt problem except for ‘kicking the can further down the road’ to the next deadline and hoping for an economic recovery until then. The next funding deadline is Jan. 15, 2014 and the next debt ceiling deadline is Feb. 7, 2014. In the meantime, a congressional committee will work out a longer-term budget deal. It seems as if global markets can rest until then.

Since start of September there was also a remarkable upward correction in the STI and a good opportunity to re-buy cheap has passed. Like markets in Europe and the US, the STI reacted negatively to rumors about tapering of quantitative easing and a pending attack on Syria. Bad news about flattening growth in emerging markets and asia probably also had some impact on the performance. I guess similar to the DAX and DOW JONES, the STI has recovered in the meantime due to the recent positive news trend.

Having said this, it is quite fascinating to see how interdependent all markets are and how important the US monetary policy has become for the world economy. It is this market property which makes me a bit thoughtful about the overall developments. Do prices currently really reflect the intrinsic value of stocks or has everyone just become really desperate about the lack of alternative investment opportunities?

Let's see where the journey of unprecedented loose monetary policy leads us by the end of the year. It seems as if we have new market records in front of us, but the key question is for how much longer...

As usual, the media associated the tapering of QE and the pending attack on Syria as the causes for the correction. - See more at: http://www.bigfatpurse.com/2013/09/singapore-permanent-portfolio-update-aug-2013/#sthash.CZVmwtil.dpuf

ETFs - Selection

noreply@blogger.com (Anonymous) — Sun, 22 Sep 2013 21:16:00 +0000

When I graduated from university and started my work life back in 2010, I decided that some part of my monthly salary should be held back for my own retirement.

Sadly enough, but in Germany we have a birth rate of 1.36 children per woman, even less than in Japan with 1.39. As a consequence, there are less employed people who have to finance the older generations’ pensions. This development is reflected in the ratio of employees to retirees which will be close to 1.00x by the year 2040. Some decades ago, this ratio has been in the area of 3.00x meaning that 3 employed workers used to finance the pension of 1 old retiree.

The state rent system of past decades used to be well-funded by masses of younger employees so that retirees were almost guaranteed a big part of their last salary as perpetuity. As an example, in the 70ies retirees were paid almost 70% of their last salary by the state rental system. In the meantime, this figure came down to 50% and is expected to further decline to a level of 30% for 2040 onwards.

Being confronted with these figures, younger people should quickly come to the conclusion that they cannot rely on the state system alone and need to provide for the future via private pension plans. That's where the capital market comes into play.

I like the idea of directly investing part of my monthly salary in a private and flexible pension plan. When I started to inform myself about pension plans in 2011, I was not following the idea of dividend investing alone. At that time, I decided to invest in funds which should be both partly dividend-oriented as well as growth-oriented, exposed to mature as well as emerging markets.

I read many articles about fund investing and ETF investing and decided that I prefer ETFs towards regular funds as I think that the biggest part of the overall portfolio performance stems from the cost average effect, i.e. buying cheaply during stock market dips and thereby benefiting from market cycles whilst enjoying much lower administration expenses and low to none management fees.

When it comes to ETF investing, there are certain things to consider before choosing the right ETF for one's needs:

1. A) There are "swap-based" ETFs which replicate the performance of an index without holding every single asset of the index (it gets complex and costly if the ETF has to buy each 500 stocks of the S&P 500 for example). For Deutsche Bank ETFs (DB X-Trackers), swap contracts may only be used for max 10% of the overall portfolio value. Theoretically, the swap Contractor can be any financial institution which exposes the investor to a potential “default risk” of the Contractor. This sounds risky, but in case of DB X-Trackers the Contractor is Deutsche Bank itself which, in my view, reduces default risk significantly (if Deutsche Bank goes bankrupt, the worldwide banking system will be probably do so as well).

B) Then, there are ETFs which use a “full replication” approach, meaning that the ETF holds the exact same assets in its portfolio like the index it is replicating (an ETF investing in the DAX would therefore hold all single 30 stocks in its portfolio in same weights like the DAX).

2. There are ETFs distributing dividends in cash and there are ETFs directly re-investing dividends (without any potential tax impact on dividends).

3. There are ETFs in different currencies. Diversification across the main currencies such as USD, EUR, GBP, SGD, etc might be advantageous.

4. Market capitalization is another important criterion. The larger the ETF, the more liquid it stays in principle. This can enable the investor to quickly sell down even in a crisis scenario.

5. Diversification across sectors and geographies. In general, every ETF should provide information on the sectors and countries it is invested in thereby enabling the investor to calculate its overall portfolio exposure to sectors and countries.

6. Last but not least, one should also consider choosing different ETFs from different ETF providers to again enhance diversification.

Based on all these criteria I chose the following ETFs in which I invest €200,- on a monthly basis

*DB X-TRACKERS STOXX GLOBAL SELECT DIVIDEND 100 ETF 1D

*DB X-TRACKERS MSCI AC ASIA EX JAPAN TRN INDEX ETF 1C

*DEKA MSCI EUROPE UCITS ETF

*ISHARES MSCI EMERGING MARKETS

Watchlist - Aug 2013

noreply@blogger.com (Anonymous) — Sat, 31 Aug 2013 14:49:00 +0000

See below my current watchlist:

Some stocks I am more interested to invest in than others and therefore I am more frequently following price developments and publications of these stocks.

This table does not imply that I would like to add all of these stocks to my portfolio. It is simply an overview of all the stocks I currently find worthy to look at.

Market - Aug 2013

noreply@blogger.com (Anonymous) — Sat, 31 Aug 2013 11:22:00 +0000

Not too much has happend in the stock markets during the summer period since my introductory post in June:

After the Fed stated it is likely to slow down its bond-buying programme later this year, markets fell back to 7,700 (DAX) and 14,700 (Dow Jones), but recovered close to or even exceeded

recent all-time highs (DAX: 8,530 / Dow Jones: 15,650) in July.

While politicians see the US economy continuing back to growth supported by decreasing unemployment rates, the situation in good old Europe is way more diverse with still unbearable unemployment rates and debt burdens in "the South" and more stable but stagnating economies in "the North". In addition, the situation is exposed to potential political shocks like Germany's elections in September or upcoming debates about a 3rd bail-out package for Greece.

Overall, it seems as if the US is better off and politicians already see the Fed starting to draw down on the amount of bonds it buys very soon.

I have my doubts about the recent recovery in the US and like few years ago I ask myself today how and when Western economies (including Japan) will ever start to repay debt and de-leverage. Until there is no strategy to reduce debt, there is little reason to believe that the US recovery is sustainable and that the Fed will stop its bond buying programme in the near future.

At the same time, there are recessionary fears in the Emerging Markets and Asia: Asia’s role as world’s growth engine seems to be waning and economies across the region weaken with investors pulling capital out of the markets. This development is reflected in the recent downward trend of my 3rd core market Singapore and its Straits Times Index (STI).

At a currently favorable EUR/SGD exchange rate, this could be a good opportunity to increase my Singapore exposure by solid positions like SingTel (4.78% yield) and Capitamall (5.42% yield). With a potential Syria war conflict in mind, I will stay tuned and watch the markets in the next days, keeping in mind that I could also catch the famous falling knife...

Others - Dividend Growth Investor's article on Seeking Alpha

noreply@blogger.com (Anonymous) — Thu, 04 Jul 2013 17:56:00 +0000

Yesterday evening, I went into a fine beer garden and got completly shit-faced. While I was totally unproductive in the morning, my blurry mind slowly recovered in the afternoon when I came across a very nice article which was written by Dividend Growth Investor and posted on Seeking Alpha. I find this article very inspiring and therefore I am sharing it here. It summarizes very well how dividend-investing works and what the advantages are, especially if you are starting at an early age and continously stick to your strategy:

"Imagine your perfect day. You wake up when you are rested, without the need of any alarm clocks. You then do some working out , followed by having a nice healthy breakfast. You then read at your leisure, have a lunch later in the day to beat the 11:30 - 1 pm crowds, and then review your brokerage accounts. You notice dividends from several companies are deposited today, and you decide to transfer them to your checking account. You check for any major items concerning your portfolio holdings, and spend a few hours researching a new dividend stock.

After that you get more time to concentrate on your activities, be it volunteering at the local homeless shelter, mentoring high school students, learning a new language or simply catching up on some good books. Later that day, you might decide to enjoy a few with your mates/gals. This dream is brought to you by dividend investing.

This is my retirement dream in a nutshell. The reason I started Dividend Growth Investor blog in 2008, is to write down ideas on how to make it happen. I believe that dividend growth investing works for all investors, regardless of their age. However, I do realize that older investors might have a preference for higher yielding stocks, while youngsters like myself can afford to build portfolios across the yield spectrum.

One of the most common misconceptions about dividend investing, however, is that it is not a good strategy for building your nest egg, and therefore it is not suitable for younger investors. Being a youngster myself, I (not surprisingly) disagree.
Younger investors are typically told to take a lot of risks early on, because they have time to recuperate those losses. I find this saying to be very dangerous for young investors. The problem is that taking risk is important, but it should not mean gambling. Investors should only be taking on large risks when they have a strategy with positive expectancy of a positive return, while risk is minimized. If you invest in penny stocks, social media stocks, or if you bought dot-coms during the tech boom of the late 1990s, you took huge risks but you were likely making concentrated gambles. There is a cost to gambling, because losing your entire nest egg of $10,000 at the age of 24 means you will be poorer by $800,000 by age 70. This calculation assumes a 10% annual return for 46 years.

In contrast, with a typical dividend growth strategy, you get a slow and steady approach that will lead to a monthly passive income that will pay your expenses in retirement. Starting out early will be beneficial, because you would gain the necessary experience through trial and error, and find out the nuances that work out for you. This would make you successful, and ensure that you maintain your success in investing. A big part of investment success is not losing too much in your investment career.

With this dividend strategy, we are focusing not on net worth per se, but on target annual dividend income. If your goal is to have a net worth of $1 million dollars, but you end up investing it in a relatively illiquid asset such as a personal residence, you might not be able to retire entirely on it. In some parts of the U.S., you might have to pay $20 - $30 thousand in annual property taxes plus paying for upkeep, maintenance etc. If, instead, you had a rental property generating $4,000 in monthly income or a portfolio of dividend stocks generating a similar amount, you might be set for life.

I believe that a new investor who does not have a lot of money today but who plans on accumulating their "financial nut" over the next years will be perfectly able to utilize dividend growth investing. With this strategy investors turbocharge the dividend income growth of their portfolios by putting money to work every month in stocks that regularly boost dividends, and then reinvesting those dividends selectively.

Since 2008, I have been on a mission to build up my portfolio income. Every month, I save an amount of money that I deposit in my brokerage account. I scan the market for investment opportunities all the time, followed by analyzing prospective investments. I identify dividend stocks for further analysis either by running my screening criteria against the dividend champions or contenders lists, by looking at weekly list of dividend increases as well as through interactions with other investors and the general method of my inquiry into business.

I do a complete stock analysis of each company I find interesting, in order to gauge whether the company in focus has any competitive advantages, pricing power and whether there are any catalysts for further expansion in revenues and profitability going forward. I focus on companies that can grow earnings over time, which will provide the fuel for future dividend increases. A rising earnings stream is also positively correlated with an increase in stock prices. You can have your cake and eat it too with dividend growth stocks.

My goal is to acquire the quality companies identified for purchase at attractive valuations. Entry price does matter to an extent, because a lower price provides a higher margin of safety in the investment and is equivalent to a higher dividend income. Of course, if you plan on holding stocks for 20 - 30 years however, it would not really matter whether you purchased Johnson & Johnson (JNJ) at $70/share or $75/share. If you overpay today however, it might mean that your returns in the first five years might be below average, until the growing earnings result in a valuation compression that would make the stock attractively valued today.

For my personal portfolio, I try to generate annual dividend growth in the 6-7% range on aggregate. My portfolios also yield approximately 3.50% - 4%. I achieve these aggregate figures by stacking three different types of dividend growth stocks, for maximum results. So far, I am able to cover approximately 50% of my expenses from my dividend income.

A few good picks include:

Coca-Cola (KO) engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend champion has increased distributions for 51 years in a row. Over the past five years, Coca-Cola grew distributions at a rate of 8.40%/year. Currently, the stock is trading above the 20 times earnings limit I have set for myself, but yields a very respectable 2.80%.

Phillip Morris International (PM) manufactures and sells cigarettes and other tobacco products. The company has managed to grow distributions by 13.10%/year since the spin-off from parent Altria Group (MO) in 2008. I like the economics of the tobacco business, without the liability stemming from doing business in one country. PMI's revenues are generated outside the U.S., and therefore are not dependent on a single country's onerous laws on smoking. Currently, the stock is trading at 16.60 times earnings and yields 3.90%.

Kinder Morgan Inc (KMI) is the general partner of Kinder Morgan Partners (KMP) and El Paso Pipeline Partners (EPB). It also owns limited partnership interests in KMP and EPB. The most important asset is the incentive distribution rights structure, which provide for a 50% share of any future distributions growth over a certain threshold for KMP and EPB. Given the growth projections for energy assets in the U.S., and Kinder Morgan in particular, this stock can achieve high single digit dividend growth for at least the next five years. Currently it is yielding a very attractive 4.20%.

Procter & Gamble (PG) engages in the manufacture and sale of a range of branded consumer packaged goods. This dividend king has increased distributions for 57 years in a row. Over the past five years, Procter & Gamble has managed to boost distributions at a rate of 12.20%/year. Currently, the stock is trading at 17.20 times earnings and yields a very respectable 3.10%.

Let's see how a portfolio stacks, where a young dividend investor puts $3000/month in 4% yielders that grow at 6%/year. After five years with this approach, you would be earning $750 in monthly dividend income. Ten years after starting this strategy you will be earnings $2,000 in monthly dividend income. Fifteen years after beginning your dividend investment journey, you will be making almost $4,000 in monthly dividend income. This slow and steady approach is very boring, and it is not as exciting as tripling your money in Tesla (TSLA) in less than a month. However, more investors who focus on long-term wealth accumulation potential of dividend growth stocks will be better off than investors who gamble on the next big growth stock.

An investor with a vision will look beyond the 3%- 4% current yields today, but look at the potential for higher distributions over time. An investor that starts small at a young age, builds a diversified portfolio of income producing securities with growing distributions when valuations are right, reinvests these rising distributions into more stock and continuously adds to his portfolio, will achieve wealth at a relatively young age."

Source:

http://seekingalpha.com/article/1530802-dividend-growth-investing-is-a-perfect-strategy-for-young-investors?source=email_investing_income&ifp=0