What a week it was! I had a very productive week at work, spend quite some time with the family and I was able to be productive for this blog.
Danone SA – Stock Analysis
Dividend Talk Episode 4 – Q2 2020 Portfolio Review
Having said that, enjoy this week’s 5-Bullet Sunday!
PS: If you like these Sunday updates then please like this post or leave a comment. It highly motivates me!
5-Bullet Sunday is a weekly blog post with 5 topics that were on my mind this week related to Financial Independence and Dividend Growth Investing or something that just fed my curiosity. An overview of earlier posts can be found here
🌟 Your best hedge?
This week I was watching the news and Bill Gates was on air to talk about the COVID-19 pandemic. So far he’s been pretty accurate in his predictions regarding the complexity of fighting the virus. They also spoke about a potential second wave later this fall, because there seems to be some seasonality in the virus.
Hence I quickly checked the gold price as usual when I hear such predictions. I never invested in gold so far, but gold is plugged in my mind as a synonym to “buy it when shit hits the fan”.
It was interesting to see that Gold is nearing its all-time highs from 2011 again ($1859) after it’s low back in November 2016 ($1050). Buying Gold around 1K would’ve made a pretty good return until now. I guess the price had a strong correlation with the confidence in Trump’s presidency 😜.
There is a new kid on the block though: BitCoin (⚠ don’t click link).
Bitcoin is considered the new gold by several pundits. Forbes wrote an article about it back in January this year and it called bitcoin a good hedge against global uncertainties like tradewars.
I believe that the pandemic is a great example of a global uncertainty.
So let’s quickly check then to see how Bitcoin performed compared to Gold:
|Year To Date return||Pandemic impact to markets (19-feb-2020)|
Looking at this data tells me that Gold outperformed Bitcoin since the peak of the market in feb 2019. It is interesting to see that both Gold and Bitcoin also lost quite some value in the March stock market crash. I guess this was just the result of people massively selling their portfolios in a flight to cash.
As you can see, Gold quickly recovered though and indeed acted as a hedge to the downturn. Bitcoin seems to have performed more in lockstep with the S&P500 since then.
It is important to mention though that Bitcoin outperformed by a wide-margin if we would take the Year To Date numbers. I just don’t know whether that’s a fair reference point if we’re looking at it from a “good hedge against global uncertainties” point of view. At that time the virus was not really in the news yet and definitely not seen as a global pandemic.
What am I taking away from this?
I might consider in the future some allocation into gold in my portfolio as a hedge to protect my principal once I’m really depending on it. Not now though, I’m still in the early stage of building my portfolio.
🌟 Am I missing out?
This is the feeling that I am regularly having when listening to stock market news. My dividend growth investing strategy is one for the long run and it’s not an easy one. It requires consistency, a certain cadence and most of all: patience.
What’s nagging me at times is this little voice in my head with the What if? question.
Just have a look at the Year-to-Date return of Tesla 👇
269%!!! And that’s just since the start of the year during the worst pandemic we’ve seen in a century.
And Tesla is not an exception. There have been quite some Tech stocks with similar YtD returns.
Anyway, seeing these kind of charts makes me wonder sometimes whether DGI is really the right strategy. I guess we all have these doubts at times. But I do know that my expenses are covered with dividend income by approximately 23 to 25% and this is something that I appreciate very much.
So if you’re a DGI investor like me and struggling at times with the same FOMO feelings, then just know that #youreNotAlone!
If it helps, just have a look at the chart below. It gives me comfort to why I prefer a DGI strategy. Please do note that most shareholders of Dividend Aristocrats have seen growing dividend income during those times.
Having said that, I do have 10% of my portfolio reserved for “Mad Money” and I do own few non-DGI stocks like Google and Facebook. I guess that my DGI mindset blocks me in investing in stocks like Tesla and Shopify due to their valuation metrics. Is it really Mad Money then? Probably not….
PS: we also talk about this topic in our latest podcast based on a related question from Let’s Compound.
🌟 Last Week’s purchases
I made another two purchases for my portfolio in the last week.
On Thursday I bought my second tranche of AT&T ($T) at $29,47. I wrote about my initial purchase in last week’s 5-Bullet Sunday and I find this stock attractively valued under $30,00. It is a Tier-4 position for me in my allocation strategy and I will likely not purchase any further. I consider it a full position now.
The dividend income which I need from a Tier-4 position is already covered for 92%. The additional few percent will come over time via dividend increases.
The second stock that I bought was Danone ($EPA:BN) at 60 Euro per share. I find this company very attractive at current prices and you can find my recent analysis about the stock here.
I do know that many readers worry about the French tax rate. The French tax rate for foreigners is 12.8%, which is rather low. The issue however is that our brokers typically deduct 30% tax as if we would be French nationals. This makes it quite cumbersome for international investors to ask their money back. I’m going to do this next year and I intend to share my experiences on this blog.
Having said that, the current dividend yield is 3,5%. The Tax adjusted yield (let’s use the 30%) stands at 2,45% yield. This is not a bad starting yield compared to many US consumer staples like Procter & Gamble (2,55% and 2,17% tax adjusted). If you are able to claim back the additional 17,2% of tax, then the story becomes only better.
I know that most of us are talking about relatively small amounts of money (<10K) so the costs and effort associated to claiming the money back might not be worth it. I get that. In such case I would probably recommend to focus on Unilever NV instead. It is of similar quality and it has a similar Yield on Cost but at a Dutch dividend withholding tax rate of 15%.
🌟 Recommended Read
Cucumber time is starting, so this is a great time to read books
on the beach in the garden during your staycation, but also to read-up a bit on potential stock-market risks for the remainder of the year. Now is the right time, because soon earnings season will start again.
This means that I’m recommending two analyst reports as inspiration:
- 2020 Global Market Outlook, Q3 update by Russell Investments. It includes a nice graph about a “contrarian indicator”
- Midyear Outlook by Blackrock.
In case you don’t have time to read: main risks are 2nd Covid19 wave, High Inflation due to money-printing, US presidential election and an escalating US/China trade war .
🌟 Recommended Video
WireCard was the most traded stock at deGiro in Germany during the height of the pandemic. I hope that you didn’t lose your investments there.
Having said that, I found the below video very interesting. It’s a brief summary and reflection from the Financial Times journalist whom was challenging WireCard’s practices for several years.
This was it for the week!
Enjoy the summer and the vacation 🌴 and have a good remainder of the Sunday.
See you next week again for another 5-Bullet Sunday 😎
European Dividend Growth Investor
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.