Adding New Companies To The Watch List

In these times when valuations in general are high one has to have patience and remember the saying that what goes up sooner or later must come down. It is also important to keep focusing on individual companies and not get distracted by how the market as a whole evolves.

With the above in mind, I have expanded the Watch List to encompass even more companies. My reasoning is that the more companies I monitor the greater the likelihood is that a buying opportunity will surface. A larger Watch List also increases the opportunity for me to diversify my portfolio and the passive dividend income. Expanding the Watch List means more work, but I'm convinced that it will pay off. The observant reader may already have noticed that I have added the following companies to my Watch List:

Hufvudstaden is a Swedish real estate company that acquires and manages office and retail properties in central Stockholm and Gothenburg (Swedens two bigest cities). The property portfolio consists of 30 properties, but in very attractive locations. The rental vacancy rate is low and the region of Stockholm accounts for the majority of the earnings. Profit and sales growth has been stable over time and the company is very conservatively financed with an equity ratio of almost 60% and an interest coverage ratio around 7. Hufvudstaden has raised the dividend 19 years in a row and the dividend has been increased on average by almost 8% a year since 2006. The company is together with Castellum my favorite picks in the Swedish real state business, but unfortunately, the market valuation is high right now, 

Aflac sells additional insurance coverage in the United States and Japan. In total, the company has over 50 million customers worldwide. Approximately three quarters of the company's revenue comes from Japan, while the remaining part comes from Aflac's US operations. The company is focused on providing additional coverage to people who are already insured through their employer. Aflac has raised its dividends 31 years in a row and is at the moment traded at a P/E-ratio around 9. The low valuation has primarily to do with the strong dependence of the Japanese economy and exposure to European debt. The yield is on the low side at 2.5%, but a payout ratio of approximately 24% leaves rom for future dividend increases. The dividend has increased by 20% on average per year over the past decade, which is impressive.

Bahnhof is an Internet Service Provider that sells data and broadband services to individuals and businesses manly in Sweden, but also in Europe. The company offers services like hosting, broadband and IP telephony. Bahnhof also provides services that provide anonymity on the internet, something that the company believes strongly in. One of Bahnhof's strengths is their good reputation among customers, which means that the company doesn't need to spend much on marketing at the moment. Bahnhof has had a really nice revenue and profit growth since the company went public. The dividend has increased by an average of 50% per annum and profits by 30% since 2007! 

Gjensidige is Norway's largest or second largest (depending who you ask) insurance company with operations in Scandinavia, Europe and the Baltics. Gjensidige has shown a healthy earnings growth rate the last couple of years. During the period costs have been kept down and the proportion of profitable customers has increased, which has contributed to the profit growth. The dividend has increased by a total of 31% since the company started distributing in 2010. The P/E-ratio is 16 at the moment, the dividend yield approximately 4.2% and the payout ratio 70% based on the past 12 months earnings. Gjensidige has a large exposure directly and indirectly to the Norwegian housing market, something one should be aware as a potential investor.

My plan is to return to the companies mentioned above in future posts. For those of you who want to see the valuation metrics as well as my assessment of fair price regarding the companies above feel free to visit my Watch List in the main menu of the blog. 

Have a nice day!

Adding New Companies To The Watch List

In these times when valuations in general are high one has to have patience and remember the saying that what goes up sooner or later must come down. It is also important to keep focusing on individual companies and not get distracted by how the market as a whole evolves.

With the above in mind, I have expanded the Watch List to encompass even more companies. The more companies I monitor the greater the likelihood is that a buying opportunity will surface. A larger Watch List also increases the opportunity for me to diversify my portfolio and the passive dividend income. Expanding the Watch List means more work, but I'm convinced that it will pay off. The observant reader may already have noticed that I have added the following companies to my Watch List:

Kone (One of the world's leading companies in the elevator and escalator industry from Finland, with operations in 60 countries and an impressive profit growth averaging 30% per year since 2005.)

Toronto Domino Bank (Canada's second largest bank which has had the highest profit and sales growth of all the major banks in the country. The dividend has increased by an average of 10% per year over the period 2005-2014.)

Royal Bank of Canada (Canada's largest bank with 80,000 employees and 40% of its revenue from the international market, of which 18% comes from the US).

Bank of Nova Scotia (Canada's third largest and most international bank with operations in over 55 countries and more than 19 million customers worldwide. The bank has had a dividend growth of about 7% on average the last ten years.)

Nolato (an industrial conglomerate listed on the Swedish Mid Cap with operations in telecommunications, industrial and medical devices. The company has raised their dividends by nearly 500% since 2005.)

Beijer Ref (another Mid Cap company engaged in trading and distribution of cooling components and air conditioning. The company has grown it's dividend considerably during the last teen years even if the dividend has varied in size over the years.)

I will return to the companies mentioned above in future posts. For those of you who want to see the valuation metrics as well as my assessment of fair price regarding the companies above feel free to visit my Watch List in the main menu of the blog. 

The Season For Dividends Is Upon Us

Spring is like second Christmas for us dividend investors residing in Sweden, since the majority of the Nordic companies distribute their dividends that time a year. I would have preferred that Swedish companies, like their American counterparts, would payout dividends quarterly so that my dividend stream would become more evenly distributed, but things might change in the future, who knows.

This is how my dividend stream is distributed over the course of the year.

My dividend season has, as you can see above, already started with dividend payments coming in from Apple and Deere & Co. However, it's during March that the season kicks off properly. April is by far the most prominent dividend month followed by May, March and June, in descending order.

Having both a trip to the United States and dividend season to look forward to next month is great. What does your dividend season look like?

Have a nice day out there!

How To Act In Anticipation Of And During A Market Downturn?

Most companies in my portfolio have been reporting their fourth quarter results lately and in the meantime the stock market has continued its journey upward. Buying opportunities are getting fewer and far between, which has made the Watch List look less exciting than in a long time.

Longing For The Market Downturn
I can honestly say that I long for a general downturn. It may seem strange to some, but for us who want to buy quality companies at a discount, and in the process increase our dividend stream significantly, the scenario is tempting. 

Image courtesy of cooldesign images at FreeDigitalPhotos.net

I have started to contemplate whether or not I should seize with the monthly purchases and await the coming stock market downturn. Because a significant drop in stock prices will come sooner or later, the big question is when. Maybe I'll have to wait a month or so, maybe until next year or even longer. 

The question is if I'm prepared to stay outside the market for as long as it takes? And how would I act if the stock market started plummeting today? How many positions would have time and the courage to take before the stock market climbed back to previous levels? 

How Did Things Turnout In 2007?
If we look at history, the major stock market crashes have become steeper and steeper and the recovery time has become shorter and shorter. In connection with the last major downturn, the Swedish index OMXS30 hit bottom, October 27 2008, after about 4 months and the market stayed at that level for about 6 months. The time one had to buy bargains was in other words more limited than one might think. OMXS30 had after about 20 months recovered to the same levels as before the crash.

I'd like to think that I would have bought large amount of shares in great companies during the 6 months we stayed close to the bottom.The likelihood however is that this wouldn't be the case if the stock market crashed today. I probably would burn too much ammunition early on and not have much left once we reach the bottom.

In Summary
What then can we conclude from the reasoning above? Well, atleast the following - We don't know when the next stock market downturn will begin, nor when we will have reached the bottom, or for that matter how long we will stay there. What I know for certain is that I'll lose money if I stand outside the market for extended periods of time. If I continue to buy regularly and disciplined  as the market falls chances are I will still have some firepower left when the stock market has plunged more than 30%.

What's My Plan Going Forward?
I will continue to purchase stocks with regularity. When the market starts to fall, I will increase the frequency, but not to the point that I burn all my capital at once.
When the stock market has once again recovered I will revert to, something in the line, of one purchase per month. I know that the thought of a market crash seems unlikely to many at this point in time, but that's exactly why we should mentality prepare for one.

Work Less And Let Your Capital Work Overtime

There are many of us in Sweden, and the rest of the world for that matter, that get into our cars each morning and drive to an office with colleagues that we haven't chosen. There are many of us that can't slow down because we are solely dependent on the funds that our employer transfers to our bank account at the end of the month. 

For me this is not the life I want until I turn 65 (or whatever the retirement age will be at the time). The government in Sweden has of late proclaimed the need for us to work more and retire later in life. I find this to be somewhat of a paradox since the need for labor is lower than ever before historically, thanks to technological developments in IT and engineering.

* Image courtesy of Master isolated images at FreeDigitalPhotos.net

But is it really such a bad fate to be forced to work until 65 or longer? What if I get more responsibility and more control over my work or even become manager? 
Sure, with a higher position you are likely to be able to influence your work situation, but the fact remains that someone else still decides who your colleagues are, where your office is located and the objectives you must meet. The downside to taking on more responsibility is also that the time you are expected to work and be available often tends to increases. 

A passage from one of Bob Dylan's lyrics is applicable in this context:

Might be a rock 'n' roll adict prancing on the stage

Might'll have money and drugs at your commands, women in a cage

You May Be A business man or some high degree thief

They May Call You Doctor Or They May call you Chief.

But you're gonna have to serve somebody, yes indeed

You're gonna have to serve somebody,

Well, it May be the devil or it May be the Lord

But you're gonna have to serve somebody.

There will always be someone to whom we will be held accountable, whether we work full time, part time or are self-employed. My goal however is that the ones that I have to serve are mainly my family and not a manager until I'm in my seventies.

Does this mean that I hate to work and want nothing more than to lie on the couch and watch TV all day? Of course not. I want, like most of us, to work, but not because I have to. I want to be able to take time off without feeling stress or anxiety. That is why mine and my family's goal is to have a passive income amounting to our living expenses, so that we can control our time.

What then should wage workers like myself do to improve our situation?
Those of you who read this blog already know the answer to the question - invest our savings in stable dividend companies with solid track records and competitive business models. The beauty of investing in stable companies with growing dividends is that the invested capital is put to work instead of you needing to work overtime.

Companies in a well-balanced dividend portfolio will ensure that profits and dividends in the long run increase, giving you protection against inflation. By also reinvesting the dividend the growth of the passive income accelerates further. So what are you waiting for? Put your money to work so you do not have to work overtime in the future!

Does A Dividend Investor Have More Options?

A company can choose to reinvest all its profits in the business or to distribute some of the profits to the shareholders in the form of dividends. Dividends gives us shareholders a cash flow regardless if the price of the stock goes up or down. A cash flow that is to our disposal to do with as we see fit.

I got a intresting comment from a reader a time ago, who argued that dividend investors through the cash flow from dividends have more choices than investors who buy companies that don't distribute their earnings. The number of options are grater for the dividend investor he argued.

Image courtesy of Master isolated images at FreeDigitalPhotos.net

I agree, not surprisingly, with the statement, but what are these options that a dividend investor have? Shareholders of dividend companies can choose to do one of the following with the dividend they receive:

- Buy more shares in the distributing company. This option is recommended if the original investment was done right from the beginning and you have invested in a company with a stable earnings dividend history. A company that has distributed dividend over a long period of time tends to have an proven business model and strong competitive advantages that allowed them to grow large and remain viable for such a long time.

- Buy shares in another lower valued company of similar quality. The market will never be perfect and there will always be companies that due to irrational market concerns are undervalued relative to their fair value.

- Invest money outside the stock market - fine art and real estate are viable investment options. However, I believe that stock investing is by far the best form of investing for us who are employed and I will therefore for the foreseeable future have most of my capital invested in stocks worldwide.

- Cover daily living expenses or indulge in a little everyday luxury. Using the dividend for any type of consumption is not something I plan on doing in the near future, but the possibility is there non the less.

- Transfer the dividend to a savings account in anticipation of better buying opportunities - which I partially done recently. It's no secret that I and many others feel that the stock market is overvalued and that there are few buying opportunities right now.

In addition to financial instruments such as options and warrants dividends are the only way for a private investor to make money from a stock without selling off their shares in the company. 
The beauty of dividends is that they are passive and, in most cases, a recurring income. Can you think of any more options a dividend investor has compared to those how solely own shares in non-distributing companies?

Monthly Report - January 2015

Time flies when you're having fun and it's already time for january's monthly report. The Swedish stock market has continued to rise a month into the new year, and at the time of writing is up by over 7%. I have mixed emotions about this fact - it's nice that the portfolio has increases in value, but at the same time it's frustrating seeing the companies on my watch list becoming increasingly more expensive.

As of right now I don't plan to completely stop buying on a monthly basis. Provided that there there is value to be found out there, I will aim to continue investing regularly. 

Purchases During The Month
Not a single purchase was made during the month of januari. I hope to find som value in February.

Development Of Our Passive Income
For me and my family time is among the most precious things we have. We hope that our passive dividend income will help us gain more control over this important resource.
I've mentioned it before, but it may be worth mentioning again, that the passive income in the monthly report correspons to the current annual dividend per share multiplied by the number of shares I own. To try to clarify this further - the passive income on an annual basis is the equivalent to what I would have received in dividends had I owned all the shares for a whole year.

Despite the fact that no purchase was made during the month, the passive income has increased in SEK thanks to dividend increases from Atlas Copco, H&M, Handelsbanken and Fortum. However due to a weaker Krone the amount is unchanged in dollars from last month. The passive income on an annual basis is, at the time of writing, about 2600 dollars on a annual basis and covers approximately 6% of our annual cost of living.

This is how far we have come in relation to the first 10 years of our long-term savings goal;

The graph above shows that we are already well-postioned for hitting the target for 2015. However, if the markets continue to rise during the year it may be difficult to achieve the goal for the year despite the excellent starting position.

The Month Ahead
In recent months most companies on my watchlist become more expensive. The only company that looks cheap at the moment is Bonheur, but the risk associated with the stock is also higher than for other companies on the watch list. My estimate of sustainable VPA and future dividend growth is dependent on the price of oil and the condition of the Bonheur's rigs. I'm looking forward to reading through Bonheur's and as well as my other companies reports this month. Which company will increase its dividend and by how much? Will we see a dividend reduction from Bonheur?

The following companies in my portfolio will release their reports in the near future:

- Friday, 5 FEB - Industrivärden
- Monday, 9 FEB - Beijer Alma
- Tuesday, 10 FEB - Coca Cola
- Thursday, 12 FEB - Mekonomen
- Wednesday, 18 FEB - Bonheur
- Tuesday, 24 FEB - Deere & Company

I will try to post my thoughts on so many reports as possible here on the blog. As usual I am hoping for buying opportunities in these and other companies on my watch list.

Have a great day!