6 investments I made in 2017

 

Hi, fellow reader, appreciate you stopping by.

In this post I want to give you an overview on our investments we have made so far during the year.

2017 Stock acquisitions

My family and I had a great time this summer, travelling and looking for interesting projects. And of course we have been shaping our finances even further. In July we were able to boost our monthly savings rate above 70 %, for the year our rate now stands at 65 % (my fellow blogger Mustachian Post runs a very inspiring Blogger Savings Rate Index (BSRI), check it out!).

We are pretty happy with our achievements in terms of streamlining our financials and increasing our household’s profitability. This gives us tremendous flexibility and allows us to put more and more money to work for us.

In 2017, we have invested the amount of around USD 22’000 in following businesses (have also a look at our  2016 Stock acquisitions):

  • Heineken
  • The J.M Smucker Company
  • Imperial Brands
  • Bayerische Motoren Werke AG (BMW)
  • Henkel AG & Ko
  • Reckit Benkisser

I expect these six companies to provide at least USD 500 in dividends in 2018 and that amount to incrase quite nicely over time. For next year, I target a passive income of around USD 6’000.

Giving my Portfolio a more defensive shape

I’ve covered my acquisitions of stocks of Heineken, The J.M. Smucker Company and Imperial Brands in previous blogposts (see J.M. Smucker caught my attention, A refreshing Investment and my June Dividend Report).

As you can see from the acquisition list, I set a strong focus on consumer staples.

Don’t get me wrong. I am fine with my energy and resource stocks such as Royal Dutch Shell, ExxonMobil, Chevron, Rio Tinto, BHP Billiton. I also appreciate my bank investments such as HSBC, UBS, Banco Santander, LLB, VPB. These are all fine businesses providing me with strong dividends, just take Royal Dutch Shell and HSBC for instance providing me with Yield on Costs (YoC) of almost 10 %.

However I consider consumer staples and pharma companies as the backbone of my portfolio.

Holding rather “boring” businesses such as Nestlé, Novartis and Roche taught me the power of consistently growing dividends. After 7 years, YoC of these holdings lie between 4 % and 5 %. These businesses give my portfolio stability and reliable growth. In my view, even slowing (dividend) growth is nothing to prevent long term investors of being rewarded handsomely. Defensive companies offer the possibility to engage in some of quite rare enterprises with strong balance sheets and business models being able to retain customers during economic downturns without having to make price concessions. I see consumer staple companies in particular as businesses with a low risk of getting harmed by a recession.

Now, let’s have a look at my investments in BMW, Henkel and Reckit Benkisser.

German car-maker BMW looks attractive to me

Just to be very clear:

CONSIDERING OURSELVES AS MUSTACHIANS WITH A DOWN TO EARTH LIFESTYLE, WE WOULD NOT BUY A PREMIUM CAR.

We are very happy with our beautiful red Mazda 6 Skyactiv-G 165 Ambition. I bought that model as a demonstration car for a very attractive price in 2016. Our car is a spacious combi and perfectly fine for our family of four. Running costs are pretty low for a car of that size.

BUT AS AN INVESTOR, I TAKE ANOTHER PERSPECTIVE. THE PREMIUM CAR SEGMENT OFFERS WIDER PROFIT MARGINS.

When acquiring a piece of a business, I want profitability, stability, a broad and durable economic moat ensuring me stable dividend income.  And in my view, when it comes to brand loyalty and financial strength, there are very few car makers playing in the same league as BMW. In the first six months of 2017, the company sold over 1 Million vehicles, Free Cash Flow comfortably covers the dividends despite a significant ramp-up in investments (amongst others for new electric models etc.).

In June, I bought 50 stocks of BMW providing me with a projected YoC of around 4 %.

Henkel and Reckit Benkisser, two strong competitors of Procter & Gamble

I’ve had an eye on Procter & Gamble for a very long time now and its stock kept eluding me. I just did not see a price level where I felt perfectly fine in pulling the trigger. Don’t get me wrong: Procter & Gamble is such a high quality business that it deserves a premium with regard to its stock price but I feel that time has not yet come to enter into a position into that great compay.

In the meantime, I decided to have a look at its European peers. I already have a nice position in Unilever and have been rewarded quite handsomeley over the last few years.

But there are two other businesses offering compelling brand portfolios and very solid growth: The German chemical and consumer goods company Henkel and its British peer Reckit Benkisser.

In June, I acquired 32 stocks of Henkel. The 130 years old company operates in three business areas:

  • Adhesive Technologies (Loctite, TechnoMelt, Bonderite etc.)
  • Beauty Care (Schwarzkopf, Syoss, Taft, FA etc.)
  • Home Care (Persil, Purex, Pril, Perwoll, Somat, Bref etc.)

Henkel’s brand portfolio is incredibly vast and well diversified, as said, the company is active both in the consumer and industrial sector. Henkel is competing with Unilever and Procter & Gamble on one side, but also with industrial and chemical peers such as 3M, Bayer and BASF. For me, it is the perfect long-term investment showing very solid top-line and bottom-line growth over the last decades as well as very nice dividend hikes. From 2012 to 2016, revenues grew from Bn. EUR 16.5 to Bn. EUR 18.74, operating profit in that period grew nicely from Bn. EUR 2.335 to Bn. EUR 3.17 while expanding adjusted EBIT margin (excluding one-time items) from 14.1 to 16.9 %.

In July, I acquired 38 Shares of the British consumer goods company Reckit Benkisser. Reckit Benkisser operates in following three segments:

  • Consumer Health (Enfamil, Scholl, Nurofen, Strepsils etc.)
  • Hygiene (Lysol, Clearasil etc.)
  • Home (Finish, Cillit Bang, Calgon etc.)

Reckit Benkisser is an incredibly profitable business and its stock never get really cheap. However considering the exchange rate between the Swiss Franc and British Pound being at least 15 % higher last summer and taking into account a “nice drop” of the stock price of 5 % in July 2017, I am fine with the acquisition, providing me with YoC of around 2.5 %.

 

What do you think about our stock acquisitions in 2017? Did you make some nice buys this year? Please, let us know below.

 

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

12 thoughts on “6 investments I made in 2017”

  1. I like your defensive plays because, like you say, they are relatively recession-proof, and seem likely to benefit from the growing middle class in many developing countries. I also like BMW, especially since they seem to have an eye on the future with electric vehicles and other such emerging technologies. (But like you, I will probably never personally buy a BMW 🙂

    1. Hi Miguel
      Yeah, consumer staples are in a sweet spot, there are great catalysts for long-term growth despite some headwinds in the short run. What I am looking for much more consequently now (as my portfolio has a certain size) are safe dividends with reliable growth. I let these companies and the compound effect do their work and watch my dividend income increase year by year.
      Thanks for stopping by and commenting.

    1. Hi MSM
      That’s a very interesting play with a clear defensive character. I’ve never considered water utility stocks so far but will certainly have an eye on them. I can imagine that barriers are huge (or even impossible to overcome) for potential competitors to enter a certain market. Fixed costs must be extremely high so established large providers have a tremendous advantage. Water has no substitutes and demand grows as the population does.
      Thanks for stopping by and commenting.

  2. hi,
    some wonderful firms, I also bought Henkel and Reckitt Benckiser is on top of my wish list, along with Heineken (I bought first Diageo)

    have a nice week 🙂

    1. Hi Maximiliane
      Thanks for your comment and continued support.
      Glad to have you as fellow shareholder of Henkel and Diageo. I particularily liked the first semester results of Diageo, solid organic growth. Its presence in the alcohol sector is just amazing, I realize it over and over again e.g. last time when I was at the airport walking through the duty free shop, brands like Smirnoff, Johnnie Walker, Captain Morgan, Bailey’s, José Cuervo, Guiness etc. are very dominant.
      I also like Brown-Forman and Pernod Ricard, will certainly keep an eye on these businesses the years to come.
      Cheers

  3. Hi FS,
    Thanks for sharing your investments purchases. You have purchased some great businesses and put an awesome amount of money to work this year.

    It’s amazing that Royal Dutch Shell and HSBC are providing you with Yield on Costs of almost 10 %! I am anticipating that any shares of ENB (Enbridge) that I buy now will be paying a 8 to 10% yield on cost by about 2024.

    Also, this post is a great reminder that I need to add more positions in consumer staples. My portfolio is lacking positions in companies like PG and Unilever as I haven’t been adding to U.S. positions with the current exchange rate. Thanks for the great reminder to get me thinking about my portfolio! Take care 🙂

    1. Hi Graham
      Yes, this year we were able to put a nice amount of money to work. I hope we can keep our savings rate at the current level providing us with financial flexibility to invest etc.
      RDS and HSBC are by far my most strongest investments in terms of YoC. I was lucky to pick RDS stocks in 2009 at a very attractive price level and HSBC Shares have litterally been beaten down before the Brexit Vote last year.
      It is important to me to have a nice mix of higher yielding stocks (such as Deutsche Telekom, Zurich Insurance, Swiss Re, RDS and HSBC) and very solid “core holdings” such as Disney, Nestlé, Diageo, Roche, Novartis, Bayer with much lower YoC at the beginning but nice dividend growth to be expected over the next decades. This mix has translated into a nice average dividend yield on my overal portfolio of 3 % – 3.5 % over the last years.
      I took the decision to give my portfolio a more defensive shape in late 2015 resp at the beginning of 2016 when commodity prices (oil, iron ore etc.) crashed. Rio Tinto and BHP Billiton slashed their dividends early in 2016, their market values were temporarily cut in halves . Also my oil holdings such as XOM, CVX and RDS took some a massive hit at that time. It showed me too much exposure on resources, cyclicals (OC Oerlikon, LafargeHolcim, ABB etc.) and banks. Hindsight, I could/should have bought more of these beaten down stocks, as they recovered nicely later on (especially Rio Tinto and BHP Billiton) but I decided to prioritise defensive stocks when I make some additions in future. I have no problem with market volatility but certainly don’t want to be concerned too much with potential dividend cuts e.g. in case of an economic downturn or a severe recession. Companies such as Rio and BHP are great businesses and I am not blaming them for having cut their dividends. And I never thought of selling one single stock of my portfolio since 2009.
      Consumer staples are more resilient and I think it will be beneficial for my portfolio development in the long run to have a lot of these stocks (I just love P&G etc.).
      Always appreciate you stopping by and commenting.
      Cheers

  4. I love consumer staple stocks. Strong brands that are in everyones household that are used regularly are recession proof. Those names are awesome and I’m looking forward to hopefully adding Smuckers sometime soon. Love the moves you are making and way to keeping shaping your portfolio for future success.

    Take care!

    Bert

    1. Hi Bert
      Yeah, stocks of high quality consumer staples are the perfect long term Investment in my view. Just watching the dividends increase each year and taking pleasure in seeing all the great products and brands each time I go grocery shopping. It’s great to hold pieces of wonderful businesses. I liked JM Smucker around USD 125 and like it even more around USD 100.
      Appreciate your support and your comment.
      Cheers

  5. Hey FS,

    that are some solid dividend stocks on that list. Interesting that you purchased shares of BMW, i just initiated a small position in Daimler. And i recognized that you have more german blue chip stocks like Bayer in your portfolio. That’s not common among dividend growth investors although there are some good solid german companies to invest in…
    I like your “backbone” stocks, especially Roche, which i’d like to have in my portfolio sooner than later.

    Keep it up!
    Best Regards,
    DividendSolutions

    1. Hi DS
      Yes, I have some stocks of german companies in my portfolio (Deutsche Telekom, BMW, Henkel, Bayer, Porsche Automobil Holding SE). I particularily like Beiersdorf (with iconic brands such as Nivea), BASF and Merck. Daimler is certainly a business I’ll keep an eye on too. I fully agree with you, there are great German businesses and I have to say that for some time periods (e.g. during the “Euro-Crisis” or before the Brexit-Vote etc.) stock prices of European companies were in general attractive to invest in.
      Swiss big pharma is another field I have always been attracted by. Roche is one of my favourite holdings, it’s a stable and extremely profitable business.
      Thanks for stopping by and commenting.
      Cheers

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