5-Bullet Sunday #57

Wow, what a week it was again on the stock market! Lot’s of earnings were reported from some really high quality companies, but it stayed far in the shadow from what happened with GameStop. This stock has literally dominated the full week news cycle, so it should come as no surprise that I’ve dedicated a bullet to it πŸ˜‰

A little bit more under the radar was my guest appearance in the Joney Talks podcast. Joney invited me to come and talk about the European way of dividend investing as a FIRE strategy. If you haven’t listened to it yet, then I would definitely recommend it. It’s available on Apple Podcasts, Spotify, Stitcher and Google Podcast

I hope your week was as good as mine, both from a health, family and wealth point of view.

Enjoy today’s 5-bullet Sunday πŸ‘


Content created this week:


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


🌟 Does valuation matter?

Imagine that you just woke up out of a coma which lasted for a week. You check your portfolio and suddenly one of your positions has done the following:

Your position suddenly grew from 2.000 USD to 32.500 USD!

I bet that the first thing you do is checking out the news to understand what kind of innovative breakthrough made this stock pop up so much. Or maybe you even won the jackpot, because some other company decided to pay an insane multiple to take over the company?

Well, throw all your logic aside, because the financial world has officially gone mad.

You now live in this simulated reality where a bunch of retail investors on Reddit decided to start a war with hedge funds on Wall Street. And they’ve been really successful so far!

In one week they were able to turn a small cap stock into a large cap stock! That’s what I call power to the people πŸ’ͺ

However, nothing fundamentally changed to the company, so what should you do?

I guess you would have the following options right now:

  • Join the Reddit army out of principle reasons – keep the stock no matter what happens
  • Sell covered call options at insane prices – speculate on a further price increase
  • Sell your position – valuation matters

Regarding option 1 and 2: you clearly have enough money after not having been on vacation last year. Enjoy the moment as long as it lasts. I know, it feels good!

Regarding option 3: check my valuation below πŸ‘‡. Maybe it saves you some time making a decision?

$GME – Stock on a Page – eDGI way

You know me, I wouldn’t even have owned it in the first place πŸ˜‰

🌟 Notable Q4 & FY 2020 Earnings Results

Novartis reported decent earnings. I liked that they kept on growing their underlying earnings (+13%) under pretty tough circumstances. Many hospitals around the world have been under #Covid19 stress for longer periods of time during 2020 which makes it harder for Novartis to make money.

The only negative element in their report was the 10% decline in free cash flow due to legal expenses and personally I was hoping for a bit higher dividend increase (+1.7%). Although this dividend hike is totally aligned with the trend in the last few years.

Having said that, the stock currently trades at a 14.9 P/E with a 3.5% dividend yield and a 52% payout ratio.

Novartis stock analysis


Microsoft (my largest position) had a blow-out quarter again. Is there anything that can stop this 1.75 trillion company?

The company reported a 17% year-over-year revenue growth which resulted in an EPS growth of 34% πŸ’ͺ. The most telling statement in their press release came from Satya Nadella:

What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry

The stock currently trades at a 35 P/E with a dividend yield of ~1% and a payout ratio of 30%.

To be honest, I don’t find the company to far off from it’s fair value. Growing earnings with 34% deserves in my opinion a rich multiple.

Microsoft stock analysis


3M also reported very strong earnings. The company reported a 21.5% year-over-year increase in quarterly GAAP Earnings and 18.5% in full year GAAP earnings. Most of their increased earnings came from excellent cost control combined with some increase in pandemic related sales.

The stock currently trades at a 19 P/E with a dividend yield of 3.35% and a payout of 64%.

I am very enthusiastic about these earnings, so I decided to average up on my position (see below video when I’m buying it).

(video) 3M Dividend Aristocrat – Why I’m averaging up!


Johnson & Johnson results were a bit of a mixed bag. The company reported weak year-over-year earnings numbers with a decline of 1.1% in adjusted EPS. This was mainly due to increased costs which outweighed the growth in sales.

Besides that the company also took a 2.9 billion litigation charge, because it faces several lawsuits over its marketing of opioids, its pelvic meshes and body powders. This is an orange flag to me and I am expecting the board to get its act together!

At the same time it gave an update on their vaccine. Investors were not too bullish on the news, but I still find it pretty amazing what the company is able to achieve:

Vaccine Candidate 72% Effective in the US and 66% Effective Overall at Preventing Moderate to Severe COVID-19, 28 Days after Vaccination. 85% Effective Overall in Preventing Severe Disease and Demonstrated Complete Protection Against COVID-19 related Hospitalization and Death as of Day 28

The stock currently trades at a 29 P/E (18.6 on adjusted earnings) with a 2.48% dividend yield and a payout ratio of 43%.


Last but not least, Kimberly-Clark reported pretty decent numbers. They grew their full year sales by 4% and their fourth quarter adjusted earnings per share were $1.69 in 2020 compared to $1.71 in 2019.

The company also announced a dividend hike of 6.5% which makes it their 49th consecutive dividend increase. One more year and it will officially become a US Dividend King.

The stock currently trades at a multiple of 19 P/E with a dividend yield of 3.4% and a payout of 67%. I like this company a lot. The stock is not too often covered on social media while it just keeps humming along.

I actually might consider increasing my position on a next meaningful dip.

Stock-analysis on a page – eDGI way

🌟 #DividendDay – Upcoming Earnings

We have declared 4 February as #DividendDay this earnings season. The picture below explains why, because this is the busiest day for us this earnings season.


What is #DividendDay?

It’s our quarterly celebration in the midst of Earnings season to honor the companies that continue to shower us with ever increasing dividends.

Few of us will also meet in the evening to discuss some of these results. The last 2 events were very nice and it lasted until the very late evening. It’s just great to talk with like-minded people and to exchange thoughts about our investment strategies, mistakes and opportunities.

Would you like to join?

Just bring your favorite drink and join us somewhere between 21.00 and 21.30 CET via Google Meet (link).


Regarding the upcoming earnings: I’m very much looking forward to the results of $GOOGL, $BABA, $XOM, $NOVO-B, AFL, $ABBV, $CB, $ROG, $RDSA, $UNA, $ABB, $HSY and $SAN.

What are the ones that you’re looking forward to?

🌟 Recommended Reads

The Sunday Investor publishes a weekly newsletter and I’m a very happy subscriber. Last week his newsletter was about the rise of thematic investing. I like about his writing style that it is very fact driven and backed by numbers. One of the facts he shared with us is that 83% of Millennials is interested in thematic investing compared to 31% of the general population. Makes you wonder, doesn’t it?

InvestiForum wrote a very interesting blog post about then STAR 50 and Hang Seng tech indexes. I’m totally not familiar with it, so it was refreshing to read a piece about this. I really think that China will dominate more and more the world from a technology point of view. The question I only have is whether we can trust the Chinese market makers to protect us as international investors.

DivGro shared his 2020 annual review in his latest blog post. I have been following him since the beginning of his journey. I still remember how he was rolling over his existing portfolio into dividend stocks. And look at where he is now: 30K USD in dividend income πŸ’ͺ Yes, he does have way more savings than I can contribute on a monthly basis, but nevertheless this is a pretty amazing growth story!

🌟 Recommended Video

It’s all about earnings right this week and I didn’t mention McDonald’s yet. It’s not needed, because my buddy Dapper Dividends published already a good video in which he runs you through the highlights of their Q4 2020 earnings.


That’s it for the this week! I hope that you enjoyed this week’s 5-Bullet Sunday πŸ™

As always, have a lovely week ahead!

Yours Truly,

European Dividend Growth Investor


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Disclaimer

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.

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European DGI

It's my desire to retire early via Dividend Growth Investing as a passive income stream. This is not easy and especially when living in Europe. That's why I started this blog and share my journey: to give you a European perspective.
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Diogo
Diogo
7 months ago

Great sugestions, will keep an eye while reading your analysis and watch the videos. By the way, there’s no link to the video about 3M.