We are about to pass the main dividend season in Europe and 2018 is poised to be again another record year for investors and shareholders with a massive increase in dividend payouts across the globe. Reason enough to bring the topic up and to discuss a few ideas for dividend-seeking investors.
There is an old quote with reference to the stock market which is saying: “Sell in May and go away. But remember, to come back in September.”
Historically there is some correlation to this quote, as markets tend to drop slightly by the end of May or beginning of June and go into correction mode. Then around October, they will usually start to bounce back and get in position for the year-end-rally that produces the largest gains throughout the entire year. Historically speaking.
For dividend investors, the “low season” between May and October is, therefore, the best time to find stocks that have lost some value and to add them to a dividend-income portfolio. Of course, stocks that didn’t drop in value can be still considered if one believes in their long-term success.
One such a stock is Apple (AAPL). I believe there is really no such thing as a wrong time to invest in Apple. The dividend payout seems not very attractive with only 1,56% yield at the moment of writing this article. This means that for every 100 EUR invested, one will receive only 1,56 EUR back each and every year. This does not sound interesting at first. It means that it would take 64 years to receive a return on your investment even before accounting for taxes, hardly any investors dream. But Apple plays both cards well: Stock appreciation and dividend growth. The company is not only one of the most profitable companies in the world, it is also innovating, fostering new technologies and has a huge, wealthy fan-base willing to pay a premium on prices each and every year. This enables Apple to grow its dividend year on year, and one can easily see the dividend double up every few years. In fact, just at the most recent shareholder meeting, it has been declared a new company policy to start prioritizing shareholders and to focus on total returns as the ultimate goal. We might see some influence from Warren Buffet here, who has just recently purchased a large chunk of Apple.
The second stock on my list is Starbucks (SBUX). It seems for now that the market is not convinced about the expansion plans in China and the stock has been trading side-wards for a while now. But you don’t need to be a genius to know that this company will keep paying dividends for a long time to come. I have a hard time finding a “quiet” Starbucks where I could sit down to write on my blog. They are always full of people queuing to pay highly inflated prices. Starbucks has now a yield of 2,09% which is similar to Apple not very high, but Starbucks is growing its dividend almost on a quarterly basis and one can expect it to double up every few years.
No. 3 on my list is Microsoft (MSFT). When I swapped my PC computer to a MacBook back in 2007, I couldn’t be happier and I got to say that at that time I didn’t believe Microsoft would manage to get out of the hole it dug itself. Despite weaker hardware, MacBooks were fast and significantly more stable than any PC I used in the past and there seemed to be no turnaround. And then came the cloud. And everything changed. Microsoft has been truly turned dedicated to improving its product and is now at the forefront of actively developing the cloud business which is successfully being set up as the new computing standard around the globe. The potential gains and growth are tremendous and while the dividend yield of only 1,72% may look also not exciting, I believe that shareholders will be greatly rewarded in the long-run.
What I like about US stocks is that they pay dividends quarterly, so every 3 months there is some movement on the account. But there are also some European stocks that may be worth considering for income-oriented investors with potentially much higher immediate yields.
A little bit speculative but (so far) very rewarding is a German company called Aurelius (AR4.DE). The company is known as a “hospital for companies” due to its business model. It acquires struggling companies which are mismanaged but promise great growth prospect. Then they put their own management team in place, brush the company up and re-sell it at a higher price. It is therefore not a regular BDC (business development company) as it does not only provide loans but actively engages in the acquired business operations in every possible aspect. This has proved extremely successful in the past, not only for the company but also for its shareholders.
If you click on the link above and visit Aurelius profile on Yahoo Finance, you will see a dividend yield of only 2,35%. This information is correct and refers to the base dividend which has been paid out last week in the amount of 1,50 EUR per share. However, every successful sale by Aurelius of one of it’s acquired business generates additional profits. These additional profits are also being distributed on top of the base dividend. Thus, while you may see only the 1,50 EUR per share at first, Aurelius granted this year a bonus dividend of additional 3,50 EUR on top. The final and total dividend of 5 EUR brought up the yield to mouth-watering 8,6%. If you have purchased the stock at lower prices, your yield has easily surpassed the magical 10% margin. Expectations for the next years to come are within similar amounts with a stronger growth of the base dividend and continuous payouts of bonus dividends.
GlaxoSmithKline (GSK) is a UK based health specialist and another idea that one can hardly go wrong with. There are only a handful of companies around the globe that have enough expertise, equipment, and capital to take on the really big challenges that our aging societies are facing and, GlaxoSmithKline is one of them. One of its investors is Bill Gates as he is actively engaged in their work through the Gates Foundation. As he said it during an interview a while back “companies like GlaxoSmithKline can just do things that no one else can do.”. That’s a pretty solid statement and the 6,53% yield in combination with quarterly payments and no withholding tax from UK side make it a very attractive investment.
Last on my list for today is a Dutch REIT (Real Estate Investment Trust) called Wereldhave (WHA.AS). The shopping mall investor went through a rough year and the stock dropped strongly on missing investor expectations and cutting its dividend. However, even after the cut, the yield is more than interesting. For 2017 the quarterly paid dividend summed up to a total annual amount of 3,08 EUR per share. For 2018 the board of directors will propose a dividend of 2,52 EUR per share, so it’s roughly an 18% cut. However, even after the cut at the current share price, the dividend amount will result in 7,58% yield. Shopping malls are not going to disappear and the “Amazon-effect” is in my opinion vastly overstated. If you come to a similar conclusion, then Wereldhave might be the right company for you.
Disclosure: I have a position in all stocks mentioned in this article.
I will give investment ideas every now and then but please note that these are not active recommendations and every investor is encouraged and responsible for his/her own due diligence. Also, when it comes to dividends, please always check about possible tax deductions/withholding tax. For example, I avoid buying Swiss or Swedish stocks due to the high withholding tax and complicated procedures to regain the money, despite the setup of double-tax treaties. Among the 3 discussed European stocks above, Germany has the highest withholding tax of 26,375% which would make any lower yield paying company far less attractive for a dividend income-oriented investor.