Is there anything better in the financial world than more and more dividends? Well, I guess not. And so in August, I was again pleased to see a substantial increase in my dividends.
With this little intro, I welcome you to a new episode of my Dividend Diary on the TEV blog, in which I document my monthly dividend income and the changes in my broadly diversified retirement portfolio. Here you can find out which companies have generated juicy cash flow for me each month and which stocks went into my basket. Besides, I analyze how the month has performed compared to the previous year. In the best case, my dividend income has increased.
As you know, I take care of my wealth management. To keep things simple, I have built three pillars:
- Active income.
- Passive income.
Dividends fall into the last two categories. They are passive because I no longer have to work to receive the payments. Furthermore, they also contribute to the conversion because I reinvest the dividends and thus increase my passive income through dividends for the future.
My monthly dividend income in August:
This month I have received payments (before taxes) from the following companies:
- AT&T (14.73 EUR)
- General Mills (10.52 EUR)
- Apple (6.21 EUR).
- AbbVie (12.67 EUR).
- Omega Healthcare REIT (9.32 EUR).
- Realty Income (3.08 EUR).
- Procter & Gamble (10.90 EUR)
- Kinder Morgan (11.02 EUR)
- Novo Nordisk (3.53 EUR)
- Caterpillar (4,50 EUR).
The total dividend income in August was: 86.48 EUR/103.04USD
Now let’s see how the performance was compared to the previous year. Last year, I received only EUR 76.94 in dividends in August, which represents an increase of 12 percent. In total, I have received almost EUR 1150 in dividends this year (before taxes).
The month was significantly influenced by the strength of the EUR, which increased enormously against the USD (8 percent on a year to year basis). This has disadvantages and advantages for European investors. Although you get fewer dividends in EUR, American companies become cheaper. I plan to write a separate article about this in the next days. So I can live well with it, even if the impact on the dividend is a bit of a shame at first.
The overall development is as follows:
Stock purchases in August
In August, I bought more shares of great companies so that the dividends will continue to rise in the future:
- TeamViewer AG (10 shares)
- CVS Health (18 shares)
- Diageo (18 shares)
- Fresenius (25 shares)
In the following, I will briefly explain why I bought these companies. Please do not expect a fundamental analysis. I will only mention some aspects per company that might be of interest to the readers. Maybe you will find inspiration for your investment. In case you disagree, feel free to write your opinion about my purchases in the comments.
Why I bought more shares of TeamViewer AG
TeamViewer is a German company that provides remote maintenance software for screen sharing, video conferencing, file transfer, and VPN. For private, non-commercial use, the software is partly free of charge. According to Microsoft (no joke), 90 percent of Fortune 500 companies rely on TeamViewer to display computer screens during conferences on external devices.
This success also has an envious effect on business development. TeamViewer is already profitable after only a few years with impressive margins.
- EPS: EUR -0.29 in 2016 / EUR 0.72 in 2019.
- Revenue: EUR 91 in 2016 / appr. EUR 459 million in 2020.
- Debt ratio: 112 percent in 2016 / 85 percent in June 2020.
- Gross Margin: 86 percent.
- Net Margin: 23.7 percent.
- Operating margin: 33.8 percent.
Below you can see this development in a graphic. TeamViewer is a prime example of how a company scales successfully without burning massive amounts of cash.
Of course, TeamViewer has a high rating. From a fundamental point of view, the company is not an investment case.
- 2020e P/E ratio: 81
- 2020e adj. P/E ratio: 59
- 2020e P/C ratio: 30
However, the company is a young growth company that will double its profits several more times if the development continues in this way. It could well get a few more times bumpy, but I can live with that, so I’ll keep buying shares. Fundamentally, I believe the future is very promising. Remote connections are becoming more and more important because, in a globalized world, we are increasingly working together from a distance. The Internet of Things will also require remote access to objects or entire production and industrial plants. I see numerous areas of applications, and I hope that Management will address these markets.
Why I bought CVS Health
As a newcomer, I have put CVS Health in my depot. The company is a real underperformer and has not given any pleasure to investors in the last years. After the expensive takeover of the insurer Aetna, CVS Health even stopped increasing its dividends until the debts will be back to a reasonable level. The following overview shows how undervalued the company is in fundamental terms. If CVS Health returned to fair value at the end of next year, there would be an upside potential of almost 80 percent.
That this is unlikely should be clear. Such mathematical shenanigans were not the reason for my purchase. I essentially pursue two goals with my portfolio. Firstly, I want to generate cash flow, and secondly, I want diversification of my company holdings. I also believe that the way investors look at companies is cyclical. Look at Procter & Gamble, Walmart, Microsoft, or even Apple. They all went through phases in which investors questioned the business model and stocks fell. Looking back, these were the best times to invest in these companies. Why should CVS Health not transform in the same way? The company is growing steadily, not to the extreme anymore, but it is growing. In the last quarter, adj. EPS grew by 40 percent YoY. The company even raised its guidance.
Besides, after purchasing insurer, Aetna CVS Health now offers drugs, insurance, and initial medical care from a single source. The business model makes perfect sense to me, and just as Amazon does not doom Walmart, neither will it doom CVS Health. From an operational point of view, CVS Health only needs to get a grip on the debts that arose from the Aetna takeover. So far, however, the company is on track to achieve its target of a debt/adj. EBITDA ratio of 3 by the end of 2022.
Overall, I see a historically low price for what I believe is a good and stable business. This combination is what I am looking for, which is why I have built up the first position. But here too, I spread the risk. CVS Health only takes up 1.4 percent of my total retirement portfolio.
Why I bought Diageo
I already wrote about Diageo a few weeks ago. There I had already said that the company owned my favorite beer (Guinness) and favorite whiskey (16-year-old Lagavulin). Apart from this, Diageo owns other very well-known brands:
- Scotch whiskey: Black & White, J&B, Johnnie Walker, Grand Old Parr, Lagavulin, The Singleton, Talisker, and Windsor.
- Vodka: Smirnoff.
- Rum: Captain Morgan
- Liqueur: Baileys.
- Tequila: Casamigos and Don Julio.
- Gin: Gordon’s and Tanqueray.
- Local spirits: McDowell’s, Shui Jing Fang, Yeni Raki, and Ypióca.
- Beer: Guinness.
Like many alcoholic beverages manufacturers, Diageo suffered from the coronavirus. Many investors have therefore sold their shares in Diageo (things were even worse at Anheuser-Busch). As a result, Diageo’s share price fell to the 2017 level. So in 2017, the market was convinced that Diageo was a good investment. Why should it be any different today?
The price setbacks have also brought the dividend yield back to fair valuation. However, the current yield is still below 3 percent. Besides, Diageo has not increased its dividend this year because of Corona. Overall, the Dividend scoreboard looks as follows:
- Dividend Yield: 2.63 percent
- Pre-COVID-19 Payout Ratio Earnings: 53 percent
- Pre-COVID -19 Payout Ratio Cash: 62 percent
- 10 Year Yield on Cost: 5 percent
- Dividend Growth: 0 Years
- (Diageo increased only the interim dividend. The final dividend will remain at 42.47 pence per share).
From my perspective, this was a good opportunity for me to increase my stake in Diageo.
Why I bought Fresenius
Besides, I put 25 Fresenius shares into my portfolio in August. Like with CVS Health, these are my first shares in the company. I will probably publish a more detailed report about the company on the TEV Blog later. The reasons for the purchase are also comparable to CVS Health. Fresenius is in a transitory and consolidation phase. However, the business model has a future, and Fresenius has a strong position in significant health care markets. Besides, it was overvalued for a long time and now finally back within a reasonable price range.
I am in the happy position of being able to make four or five purchases per month. With TeamViewer, I have invested in a fast-growing tech company (which pays no dividends) and with Diageo in a consumer goods company with strong brands. Fresenius and CVS Health are both active in the healthcare sector but serve different markets. I think I have achieved a proper diversification this month.
Watchlist for September
Next month, there will be some additional purchases of shares. I am relatively flexible here. Either I buy new positions, or I increase my shares in existing investments.
The following companies are on my watchlist in particular:
- Microsoft (MSFT)
- Taiwan Semiconductor (TSM)
- Mayr-Melnhof Karton AG
- Cisco (CSCO)
- Sysco (SYY)
- AT&T (T)
If you look at my report from last month, you will see that none of the companies were on my watchlist. Why is that? Is the watchlist nonsense, and in the end, I only do what I want anyway? Yeah, a little bit. I don’t have a fixed system for my stock purchases, and that’s one thing I have to consider changing.
However, I have an extensive overview of many companies that I look at from time to time. The companies on the watchlist are mostly companies that I have currently examined particularly carefully, where substantial changes are imminent or which are currently in my focus for other reasons.
They are present to me in some form, which is why I put them on the list and perhaps monitor them a little more closely than other companies. But it often happens that I invest in other companies, after all. And so it happens that I buy other companies because it seems convenient at that moment.
Have you received dividends this month? What’s on your watchlist? Let me know and just write it in the comments.
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I thoroughly enjoy following you here on The TEV Blog and looked with some anticipation to this latest post (I am a newcomer to your site). We are kindred spirits in that I, too, love dividends!
I received dividends from FTAI and REML in August.
Thanks for your comment, Timothy. I am very pleased about the kind words and your positive feedback.
@FTAU/REML: Wow, it looks like you have some weight in the high yield sector 🙂
See you soon and all the best,
I agree with TEV here. Strong focus on payouts. Is this your general approach?
Vic, right now, yes. I am VERY new at this and am trying to build up my portfolio, with the goal of acquiring various higher yielding/more consistent producers. Since the above note, I’ve added KO and BTI. My next purchases, I think, will be T, MO and OZK.
Any further comments/suggestions would be appreciated Vic. From you, too, TEV.
I added a few cents under my latest September update below your comment there. So it might bring some input to other readers as well.
See you there! 🙂
Thanks for another update! I appreciate the transparency of your share purchases. It’s interesting how currency fluctuations seem to have a strong influence on the amount of the dividend. Do you want to hedge this risk?
Thanks for coming by again, Vic! I really appreciate your visits.
No, this only complicates things, even though I have already thought about it. I am currently writing an article about this issue. I hope I can manage to publish it soon.
[…] same time, the fallout from the Corona pandemic continues to plague Diageo. While I added some more Diageo stocks to my retirement portfolio in August, I am currently refraining from further purchases due to the current valuation level and high debt […]