Watchlist

May 2021 Watchlist [4 DGI stocks]

Dividend Stocks to consider in May 2021

What a crazy world we live in!

The US and the EU keep on printing money like there’s no tomorrow. Talking about addictions!

But there’s just no doubt in my mind that this will lead to rapid inflation, especially once the Western world slowly starts to reopen again.

At the same time the stock market keeps feeling really expensive as if it would be ready for a correction.

I mean, the earnings last week were massive. Many tech stocks like Apple, Google and Microsoft delivered mind-blowing numbers.

But don’t be misguided by that, because also companies like Nestle and Unilever really knocked it out of the park last week.

That said, this is probably one of the biggest earnings hikes which I have ever experienced in my life πŸ’ͺ

A market of stocks not a stock market

So what should we do then now? Can it get even better than this?

Off course it can!

I’m pretty sure that the stock market will be much higher again 20 year’s from now compared to were it is today.

Dividend investing is not only about looking at the past dividend history of a company. It is even more so about looking into the future and being able to spot secular growth trends.

As an example, I think that many corporates are just at the beginning of their digital transformation. So I expect some of these Tech names to keep rocking it in the upcoming decade (i.e. $MSFT, $DLR).

At the same time we should not underestimate the impact of the increasing health conscious consumers. Nowadays it’s easy to get inspired to become vegetarian or vegan after watching some of those really great documentaries on Netflix (i.e. Game Changers, SeaSpiracy).

I think that this is a secular growth trend which Nestle, Unilever and Danone definitely will have to benefit from. The willingness to pay more for better quality and organic food is just a no-brainer to me.

Having said that, studying these secular growth trends and developing a vision on where the world is heading is a must for all the individual stock pickers.

Dividends are a result of ever increasing earnings power of an individual business, not the way around.

That’s why I’m also a strong believer that we are having a market of stocks, not a stock market.

This means to me that there are always some attractively valued stocks out there. It might just be a bit harder to find them from time to time 🧐

But hey, you’ve come to the right place, because today I will share with you 4 dividend growth stocks of which at least 3 of them I find attractively valued right now.


Castellum AB

Dividend Yield3.35%SectorReal Estate
Years Dividend Growth / Remain23Free Cash Flow Payout Ratio43.87%
5 Year Average Dividend Growth 7.86%Credit RatingBaa2

Castellum (STO:CAST | SE0000379190) is really one of these stocks which I started following late last year. I find it one of the best managed European Real Estate companies, but I have failed so far to initiate a position.

I think that this is a result of trying to be penny-wise, but pound-foolish.

Hence, this is one of the names in my watchlist that I desire to own the most.

In case you don’t know the company yet, Castellum AB is a Real Estate company in Sweden. Their portfolio has a property value of approximately SEK 96 billion.

They are located in 14 growth regions in Sweden, as well as Copenhagen and Helsinki.

Having said, the company just published it’s Q1 results and there was nothing particular in it. It just did what it had promised to do and what it always does. However, what caught my attention was the following:

Castellum AB – Q1 2021 results

This is good news in my opinion, because the company has a very good balance sheet and I find the company attractively valued. I’m not entirely sure, but it sounds like a response to the withdrawal of the failed Entra bid.

Castellum AB currently trades at 206 SEK and a Price / FFO of 17 a forward P/FFO of 16. I have a purchase order outstanding at 200 SEK.

Someone willing to trade his/her shares with me for that price?

Note: If you don’t know the company, check out my analysis from not too long ago:

Castellum AB stock analysis

Ahold Delhaize

Dividend Yield4.02%SectorConsumer Staples
Years Dividend Growth / Remain14Free Cash Flow Payout Ratio43.87%
5 Year Average Dividend Growth 10.35Credit RatingBaa1

I know! It’s getting a bit boring by now, but this is in my opinion really one of the best values out there.

In case you are new to this blog or if you’re not familiar yet with Ahold Delhaize:

Ahold Delhaize ($AD | NL0011794037) is one of the world’s largest food retail groups with it’s headquarter in the Netherlands.

It is a leader in supermarkets and e-commerce (e.g. bol.com) in both Belgium and the Netherlands. Though, it earns 61% of its revenue in the United States via brands like Food Lion and Giant.

I think it’s even in the top 5 of largest supermarket chains in the United States.

What I like about Ahold Delhaize is its supply chain excellence which allows it to have one of the highest margins in the United States.

Competition is fierce there, but the board of directors seems very convinced that they are able to maintain those margins. As an example, they are currently trying to get even more control over their supply chain in the US, so that they can protect those margins.

The company currently trades at a P/E of 16.9 and a P/FCF of 10.7. At the same time it keeps buying back shares which helped the company reducing their share count quite significantly without loading up massively on debt.

It will be reporting earnings in 2 weeks from now. Maybe it will give us an additional opportunity to add quite some shares?

I find the stock already undervalued, but I’m waiting for it to dip under 22 Euro so that I could average down. I own already 65% of a position, so I can be a bit more patient right now.

Want to know more? Check out my video from not too long ago:

Ahold Delhaize – Stock Analysis

BASF SE

Dividend Yield4.93%SectorMaterials
Years Dividend Growth / Remain13Free Cash Flow Payout Ratio92%
5 Year Average Dividend Growth 1.92%Credit RatingA3

BASF (ETR:BAS | DE000BASF111) is one of the largest chemical producers in the world and it’s currently domiciled in Ludwigshafen, Germany. The company has a very rich history and 70 years ago it was once part of IG Farben, an infamous company. Other companies that were spun-off from that entity are Bayer, Agfa and Hoechst (which is currently part of Sanofi).

The company seems to be struggling during Covid-19 and it might be one of those companies that will rebounce once the economies start opening up again. BASF is a company that benefits from a striving global industry, because it produces many input products other companies use in their manufacturing process.

This was also visible in their first quarter numbers, because the bounce in productivity in China has done the company well.

basf sales volume growth
BASF Q1 2021 Earnings Results Presentation

Their latest EPS numbers where pretty good with 1.87 which was double the amount of Q1 2020. Their Free Cash Flow was negative again and this was mainly due to a large increase in working capital. These items can fluctuate a lot from quarter to quarter, but the company will need to do a bit better there by bringing some stability in those numbers.

To conclude, I personally own already 50% of my desired position in BASF. Hence, I’m not in a rush, but I will consider adding more when it drops another 10% or so.

It’s a good industrial company with a strong balance sheet which is committed to its dividend.

Digital Realty Trust

Dividend Yield3.01%SectorReal Estate
Years Dividend Growth / Remain16Funds from Operations Payout Ratio72%
5 Year Average Dividend Growth 5.67%Credit RatingBaa2

This is really a tricky one, because sometimes it’s more wishful thinking than anything else for me.

The thing is, I really love to be a shareholder of Digital Realty Trust ($DLR | US2538681030) and I have been following it already for 2 years in the hope that it would have a proper dip.

In case you don’t know this company yet, Digital Realty Trust builds data centers in a key locations around the world, especially the United States, Europe and China.

And it’s not a small company, because it’s currently the 6th largest Real Estate Trust in the United States.

But you know, it’s not surprise, because the company exists since 2004 and has been really benefiting from the rise of connected devices all around the world.

And I expect world-wide data consumption still to massively continue increasing. Just imagine what connected cars would mean to the world and in particular data consumption?

Therefore, it should come as no surprise that Facebook, Google, AT&T and LinkedIn are some of their better known customers.

And to be honest, I love companies that are benefiting from such secular growth trends. Because these companies usually have rapid earnings growth which allows them to keep increasing their dividends well into the future.

dividend
Dividend Growth since inception

But such qualities also come at a price in the current low-interest environment, because the stock isn’t cheap. As an example, it currently trades at a ~24 Price to FFO ratio.

So, what should I do with this then?

I love the company as a business, but the shares are definitely on the expensive side.

Hence, maybe I will just do what I more often do with such stocks: buy 3 or 4 shares as an initiation position into my portfolio, so that I can start tracking it more closely.

From there it can go two ways: it either grows further into it’s earnings or the price will come down. Either way, both outcomes would be good for me as it would be a very small position.

I don’t know yet, maybe you have a suggestion for me?

But that’s the reason why I have added this stock to my watchlist for this month.


Final Thoughts

That’s it from my side. 3 typical dividend growth companies are on my watchlist this month and the last one I consider to be a bit more speculative.

What stocks are you currently looking at? Anything particular you would like to share with me?

Have a great month!

Yours Truly,

European Dividend Growth Investor.

Disclosure: I am long Ahold-Delhaize, Basf SE


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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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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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Mark
Mark
1 month ago

Hi European DGI,

Thanks for sharing this post and also the research!
To start with: I’m a DGI-fan also and in April i’ve added more AD en UNA.

I want to share my most favorites stocks with you: Investor AB, Sofina Sa, Brederode Sa and Hal Trust. Maybe you can add them to your watchlist. Do you β€˜know’ the companies?

Have a great day!

Greetings Mark

Juan
1 month ago

Hi DGI!, Great article as usual. I’m also a bit concerned about the inflationary results of so much money printing. I’ve experienced high rates of inflation myself and they are no fun. In Argentina we call inflation the “tax on the poor”, because usually households with smaller incomes are the ones affected the most by it. Anyways, nice stock picks, so far I’ve been a bit reluctant of entering the real state stock world due to taxation reasons. I don’t understand yet why they are usually taxed so differently compared with other sectors. I must say, you introduced me to… Read more »

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