Another week has past and we’re almost finishing the eight month of the year again!
Time flies when you’re having fun! I’m fully back in the rhythm of work again and I’m really enjoying it. I feel that I’m having some tailwinds at work and that simply feels good. I have actually no issue with having a 9-5 job.
Currently it earns me the sweat money and isn’t it nice that I can invest some of it for my early retirement?
Having said that, enjoy another 5-Bullet Sunday!
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
🌟 And the winner is…
Yesterday we played the first edition of the one and only Dividend Quiz!
The quiz consisted of 33 questions and many of them had a European flavour to it. Some of the questions were considered easy and others a bit hard to answer.
Unfortunately there were not too many people able to make it and we got quite some late notice cancellations. We learnt to not plan something on the hottest Saturday night of the year 😉
It didn’t take the fun away though!
So let’s get back to the ceremony! I’m proud to announce that:
Phil S. won the first edition of the quiz 🥇
Congratulations Phil! You have proven your knowledge and won the quiz by a landmile. As a price, EMF and I will invite you for one of the upcoming podcasts to talk about a topic of your choice 👌
Are you curious and would you like to give the game a try? Try it here and share us your score:
🌟 The Trump Premium
I don’t know if you have it as well, but sometimes I have those thoughts/feelings (gutfeel?) about a certain situation quite strongly which later play out almost exactly as I thought. Most of the times I don’t act on it and I often end up regretting it. Some of those examples are:
- Not buying more Microsoft at $45.00
- Not going full in on Apple when it dipped to $90.00
- Not buying more Unilever when the ECB started its Asset Purchase Program
The interesting thing is that I start to recognize my gut feel better and better while I’m in such situation. Actually, I feel it very strongly again now as we speak:
I feel that we are up for a strong downward correction of at least 10% and up-to 20% in the second half of November if Joe Biden wins the US presidential election.
I consider this to be the Trump Premium that’s currently priced in the market.
Why the Trump Premium?
- Donald Trump uses the S&P 500 as a measure for his success. He often touts the all-time highs and he seems to quickly revert policy if the index turns negative (i.e. loosen his stance on a certain topic when negotiating with the Chinese government)
- Joe Biden wants to revert some of the Trump policies, including higher taxes. I believe that he doesn’t use the S&P 500 index as a yard stick for his success.
- When Trump got elected the Index quickly jumped in a matter of weeks with more than 10% due to, among others, the expectation of an upcoming corporate tax brake. The two yellow lines show that 👇. The run up to the election saw effectively a flat line. The first market response to Trump’s win was a decline, but once the dust settled down it started on a 20% quick run-up.
Having said that, I also believe that there is a very good chance that Joe Biden wins. Somehow the narrative seems to slightly start changing in his favour. Now, I’m not living in the US and I’m neither American and I can’t support any of this with facts. It’s just based on the snippets of information that come my way. Frankly speaking I feel that people are getting tired of Trump’s bullying and start to get tired of it.
Personally I can’t be too bothered by the US elections and who wins, because we have our own issues here in the EU that we first need to get solved.
However, I don’t want to ignore my gut-feel either, because I think that I can make some money of it. Hence why I’m going to allocate a small part of my speculative “mad money” fund to buy a put option on $SPY or $QQQ (I still need to do some more research this afternoon to check which one is more overvalued).
The US election is on the 3rd of November and I am going to buy a put option for one of the two indexes that expires on 18 December with a strike price of 10% below from where it is today. I consider this a good hedge for a part of my portfolio.
Let’s test my understanding of my gut feel with some real money.
🌟 Charts of the week
Apple is a great Dividend growth stock that started its journey back in 2012. It has 8 years of dividend growth now and I can easily see it getting to 30 years of consecutive dividend increases. At the same time I see more and more people on Twitter feeling that they are missing out on Apple.
Well, just look at the below charts regarding Apple and worry no more.
Chart 1: quarterly growth in earnings. Observe limited growth since Q4 2018
Chart 2: Price to Free Cash Flow ratio
Chart 3: Price to Earnings ratio
I believe that the P/E and P/FCF valuations will revert back to the mean. The growth in EPS and FCF is just not the same as the development in share price. I see neither a reason for such forward optimism and I believe that you may expect two outcomes:
- either the stock reverts back/down to the mean
- the stock will be dead money for several years while the earnings and cash flow catch up
Hence, I believe that somewhere in the upcoming 2 to 3 years you will get a reasonable buying opportunity again and benefit from Apple as a dividend growth company.
Just ask yourself the question: what changed since the start of the year to believe that Apple is worth twice more than at the start of this year. Is it really the new normal after Covid-19?
My opinion: don’t be fooled by a rock-solid Q2 that brought forward a lot of sales due to the lockdown.
Disclosure: I own 20 shares of Apple but I definitely won’t add any more at these prices.
🌟 Recommended Reads
This week I paid some special attention to stock recommendations and stock purchases in the community.
Matthew from All about the Dividends purchased some OpenText shares in August. I found this very interesting, because it isn’t a stock that you often hear about. But just think about it, most of you who work in a corporate have probably used their software before, because it’s pretty well known for its LiveLink product.
Engineer My Freedom wrote another thorough stock analysis as part of his wider portfolio review. This time he put Eaton under the microscope and the outcome of his analysis actually surprised him. As most of you know, we together host the Dividend Talk podcast and I’m just impressed by his ability to learn. Isn’t this one of those key qualities that lead to richness?
Tom from Dividends Diversify wrote an analysis about McDonald’s. I actually owned this stock in the past at a cost price of $90 USD. I sold it though at $140 USD back in 2017, because I thought that the company was in decline. Who wanted their kids to still grow up with their food? A new CEO came in and he revamped the menu and created a new appeal to parents again. Oh boy, I was wrong on that one! Having said that, what does Tom think about the stock?
🌟 Recommended Video
Do funny and money go together? I believe so! Have a look at this good old classic interview from John and John 🤣
Who doesn’t love good old British satire?
That was it for 5-Bullet Sunday, edition #34 👌
Please don’t forget to rate this post below 👇
Have a lovely week ahead!
European Dividend Growth Investor