5-Bullet Sunday #61

Another week of craziness is behind us again. Many growth investors got scared from a small pullback in the stock market and I don’t really understand this. My mind has been totally reprogrammed as a dividend growth investor, so I actually get excited when the stock market is pulling back. In such case there’s just so much more to chose from! I literally feel like a kid in the candy store ๐Ÿญ

Hence, stay tuned for an upcoming post about my March watchlist ๐Ÿ‘Œ

But for now, enjoy today’s 5-Bullet Sunday!

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

๐ŸŒŸ My Bold Prediction

One of the amazing comebacks from last year is definitely the Oil price. Just have a look at the below chart which reflects the daily Brent Crude oil price.

Brent Crude Price February 2021
Brent Crude price, source: MacroTrends

It’s really crazy this rebound and this is what I call a v-shaped recovery.

As a result, the oil businesses in my dividend growth portfolio have recovered quite nicely since the start of this year. At least from a capital appreciation point of view. However, there’s still much more room to grow for a company like ExxonMobil to recover from their January 2020 price of $68.

It becomes even more interesting, because the Brent Crude price is currently quite a bit above the Oil Major’s own predictions.

ExxonMobil Brent crude oil price prediction
Source: ExxonMobil quarter 4 2020 earnings report

Will this result in extra-ordinary cash flows in 2021? Time will tell, but the Oil companies could really use this cash to release some of the stress on their balance sheets.

Having said this, I wouldn’t be surprised if WTI crude reaches $100 dollar within the next 24 months.

There you have it, my crazy and bold prediction.

Why do I think this?

All the majors have drastically been cutting their capital expenditures to preserve cash. This means that there will be hardly any new oil production coming online. At the same time a lot of demand for oil will be there once the world “reopens” and people book their holidays again โœˆ. This simple math is why I expect a miss-alignment between oil supply and oil demand. A spiking oil price will be the result.

I expect it to be short-lived though, because the secular trend of declining oil demand is real. Peak Oil is probably already behind us.

Let’s see if I’ll be right on this one, but I could really use it to get a nice exit-price for my ExxonMobil shares ๐Ÿ˜…

๐ŸŒŸ Bayer AG Dividend

Bayer AG reported decent earnings if you consider that the Monsanto litigation cases never happened. Which is Bullocks of course… Sales declined by 4,9% year-over-year which was mainly due to a weakening dollar. The company had to write down 23 Billion last year mainly due to the litigation cases which resulted in a net loss of 10.5 Billion. These are huge numbers!

However, the underlying numbers look a bit better when excluding those “special items”. In that case the company reported a core EPS of โ‚ฌ6.39 which is flat compared to 2019. But don’t be mistaken about the real impact, because their Free Cash Flow was a meager 1.3 Billion compared to 4.2 Billion in 2019.

Hence, it must come as no surprise that their dividend has been cut from โ‚ฌ2.80 (2019) to โ‚ฌ2.00 (2020). Long-time followers of this blog might have seen this coming already, because I’ve written about an expected dividend cut back in October.

As many of you know, I own some shares in Bayer and they are currently presenting a large paper loss. I’m not intending to sell them at the moment, because I do expect the company to turn-around now that they have the litigation cases pretty much settled. The company is currently trading at a P/E of 7.8 if you base it on their Core earnings per share, which you could consider value. That’s why I’m giving the company six months to confirm my hypothesis. If not, I’ll sell it.

Full disclaimer: I don’t treat it as a Dividend Growth Stock anymore. Hence, I wouldn’t initiate a position if I’d want to purchase it today. The company moved technically from my 90% DGI part of the portfolio to the 10% “mad money” part of the portfolio.

๐ŸŒŸ Chart of the week

Holger Zschaepitz did an awesome job by sharing the following chart with us on Twitter. This picture really says more than 1000 words.

I think global liquidity is not done yet, because so far I haven’t seen any sings that printing by Central banks will slow down and at the same time the Biden administration is aiming to implement another 1.9 Trillion stimulus package.

Hence, enjoy the ride, but don’t consider yourself a hero just yet ๐Ÿ˜‰

Global liquidity is correlated to the performance of the S&P500
Source: Twitter

๐ŸŒŸ Recommended Read

How could I not recommend Warren Buffet’s annual shareholder letter?

It was released yesterday and it is a master piece as always. What I really appreciate in this year’s report is his honesty and self-reflection. As an example, he reflected on an 11 billion write-off which was the result of overpaying for PCC.

How many CEO’s are so candid about this?

I’m still waiting to hear from Werner Baumann (CEO Bayer AG) regarding the Monsanto acquisition.

Berskshire annual shareholder meeting

๐ŸŒŸ Recommended Video

This week I would love to share with you a contrarian video again. I find it important to watch different views about the stock market so that I keep being fully aware of the bull- and bear case of particular individual stocks or the stock market as a whole.

This time it is about the hype around Cathie Wood and her impact on many stocks in her portfolio’s. It’s not only pure value what is driving the prices up and this video explains that perfectly. I think it’s just really important to be fully aware of this when investing in ARK funds or their underlying stocks.

As always, PensionCraft supports his thoughts with lot’s of underlying data.

Thatโ€™s it for the this week! I hope that you enjoyed this weekโ€™s 5-Bullet Sunday ๐Ÿ™

As always, have a lovely week ahead!

Yours Truly,

European Dividend Growth Investor

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European DGI

I am European DGI and 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 because I truly believe we can learn a lot from each other by sharing our journeys!


Iโ€™m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. Iโ€™m not a finance professional through formal education. Iโ€™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 canโ€™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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