May is coming to an end and that means already 3 months since the stock markets started to crash. The Coronavirus really shook up the world and we’re all still recovering from it.
It seems that the stock market is quite a bit ahead already compared to where many countries currently are: just considering how to slowly open up again. I believe that the stock market has already priced in quite a lot of optimism regarding a full recovery.
This holds especially true when looking at the SP500. It’s just 13% down from its all time high. It actaully looks like there would have “just” been a price correction from an overheated market. Not a pandemic!
I personally believe that the Euro Stoxx 50 gives a little bit of a better view. It’s still 20% down from it’s recent high.
Frequent followers of this blog probably know that I tend to be bearish on the market because of the economic circumstances. One thing I have learnt though is to never fight the FED / ECB. They have created so much liquidity in the market that sometimes it just feels like they are the sole reason why the market is holding up so well.
Actually, I do think that the central bankers have saved the financial system from a full collapse back in March. They have already saved many people from losing their jobs and their (retirement) savings. My hats off to J. Powell and C. Lagarde!
It also prevented me from snooping up some high quality companies at attractive prices. So maybe not a noble price then, just a good bottle of wine 😜
Having said that, I’m not an economist and I don’t know where the stock market is going from here. It can off course go up or down (duh!). But I do know that there are always some attractively valued companies out there which I would like to own!
So without further ado, let’s have a look at the 3 stocks on my Watchlist for June 💪
1️⃣ Munich Re
Munich Re ($ETR:MUV2) is a German Reinsurance Company and one of the leading reinsurance companies in the world. It is an Tier-1 company in my portfolio. This means that I really count on this company as an anchor in my portfolio.
The company earned €18,97 over 2019 (+22% yoy) and distributed a dividend of €9,80 for the full year. It increased 5,95% compared to 2018 and it means a current payout ratio of 52%. This is a very safe payout ratio. It gives ample room for increasing dividends even though their business is facing pretty strong headwinds (event cancellations).
The stock currently yields 4,95% at a share price of €198,00. This is a pretty decent yield if you put it in a historical context. I consider Munich Re generally worth considering whenever it drops under €200,00.
Munich Re is a proud member of the Noble 30 index. It has the 3rd longest growth streak with 50 consecutive years of dividend growth or maintain.
2️⃣ Red Electrica Corporacion
Red Electrica de Espana ($BME:REE) is a Spanish electrical grid operator supplying electricity to millions of people and companies. They are currently transforming their business model to become more and more a front-runner in the renewable energy space.
The company earned €1,33 per share over 2019 (+1,5%) and approved a dividend of €1.0519 for the full year. It increased 7% compared to 2018 which means a current payout ratio of 79%. This is a safe payout for a Utility. However, I don’t expect them to keep up with such kind of dividend increases goinf forward (10 yr div growth rate 8,42%).
The stock currently yields 6,6% with the current share price of €15,82. They had negative free cash flow last year due to some big investments in other companies.
I find their balance sheet strong enough and the investments seem prudent. S&P gave them a long-term credit rating of ‘A-’ with a stable outlook.
I have not found anything else in their Q1 earnings report that worries me regarding their future performance.
Having said that, there are not that many European Utility companies out there that have been growing their dividend consistently over the years. They have been growing their dividends for 25 years. It is a proud member of the Noble 30 index and a Tier-4 company in my desired portfolio.
The coronavirus has created an opportunity for me to purchase this stock around their 5-year lows. I just bought shares at €15,50 to initiate a 33% position in it. It is intended to stay a relatively small position in my portfolio. I’m mainly attracted to the combination of their business model, dividend safety and their starting yield.
3️⃣ 3M Company
3M ($MMM) should come as no surprise for the frequent readers of this blog. It was also present on my March watchlist and I continue to find it a good moment in time to dollar-cost-average 3M. Like Munich Re, this is a Tier-1 foundation stock for me. This means that it typically takes me 14 purchases to reach a full position.
The company earned $2,16 per share in Q1 2020. The earnings in the upcoming quarter will likely look much worst due to the pandemic situation. 3M pays a quarterly dividend of $1.47 or $5.88 on an annual basis. The dividend is still covered well enough based on the Q1 earnings numbers.
The stock currently yields 3.87% with a stock price of $152,08. The payout ratio is 75% based on 2019 earnings.
I find 3M still attractively valued and I intend to accumulate more shares if it drops below $145 per share.
This is my watch-list for the upcoming month. I shifted a bit away from the typical consumer staples and pharma companies, because I believe that many of them had quite some run-ups lately (i.e. JNJ).
I often get the question why I’m so focused on European companies instead of US companies. The reason for that is simple: my blog exists with the purpose of bringing more attention to European companies in the dividend growth investors community. I think that such need is underserved, hence why I included also 2 European stocks in the watchlist.
At the same time I realized a while ago that I have too much exposure in US stocks which also creates an additional currency risk. For that reason I want to increase the amount of European stocks in my portfolio.
Technically my current income is in Polish Zlotys, so I have also some currency risk with the Euro. However, that’s limited, because most of my investments were done based on Euros which I earned in the Netherlands. I am reinvesting all those dividends again in “Euro” stocks. Therefore I consider the PL currency risk as limited until I actually start living off those dividends (10 yrs from now).
Last but not least, it doesn’t mean that I don’t purchase US companies anymore. I do and you probably have noticed that in other posts and 3M is an example of that. At the same time I believe that there are many other blogs that give you a lot of inspiration on those already so I do de-prioritize them from a content creation perspective.
Having said all of that:
Happy investing all and I’m wishing you very fat and juicy dividends 💪
European Dividend Growth Investor