Hi there, fellow Reader.

May was a very good month for us dividend growth investors in the accumulation phase to pick up some stocks at attractive prices. My wife and I had initially planned to make two share acquisitions in May but eventually pulled the trigger three times, taking stakes in three exciting businesses (for the total amount of roughly USD 10’000) to strengthen our passive income machine further.

In this post, I want to cover two of the three stock buys which both operate in the consumer staple sector.

I’ll cover the third May stock acquisition then in my next blog post.

Refreshing our Investment Portfolio

Amid tariff disputes and global recession fears, my wife and I took the decision, to give our stock portfolio a more defensive shape and add two positions in the consumer staple sector.

My wife and I just love to invest in companies with strong brands, great long-term growth prospects and a broad economic moat and over the years we accumulated positions in exciting global giants such as Nestlé, Unilever, Coca Cola, PepsiCo, Heineken, Diageo, Anheuser Busch but also in smaller companies in the consumer staple sector such as JM Smucker or the British soft drink makers Britvic and Nichols.

Leading companies operating in the coffee-, chocolate-, tobacco-, spirits-, beer-, and sparkling lemonade business have been tremendously successful for more than a century. And their products are not going anywhere.

Besides the big names like Unilever or Nestlé, there are also a few smaller businesses which are not on the radar of the investor community.

Smaller consumer staple companies might not have the economies of scale and strong margins like their much larger peers, but on the other hand their stocks are trading at lower prices and our defensive stock picks in May offer forward P/E Ratios below 11 and very juicy dividend prospects.

Massimo Zanetti Beverage Group

As my wife and I just love coffe, in particular Italian coffe, we are keen on the products of that company.

Massimo Zanetti Beverage Group is an Italian coffee company, based in Bologna that owns well-brands such as Segafredo Zanetti.

The companies offers a variety of products from espresso and coffee to tea and spices as well as other food products including sauces, sugar, chocolates and biscuits.

Massimo Zanetti Beverage is a relatively small company with annual revenues of around one Billion Euro, but it clearlybelongs to the top twenty companies in sector, selling its coffees in 110 countries, through three channels:

• Food Service: direct to consumer via retail, typically to hotels, restaurants, cafés, airlines, catering and vending machine companies etc.,
• Mass Market: typically local shops, supermarkets chains, cash & carry etc.
• private label: customers from both the mass market or foodservice channels selling food and drinks produced and supplied by third parties under their own brands.

Massimo Zanetti made an IPO in 2015 and it has been the only Italian coffee company in the public market so far. The majoritiy of the shares are still held my the Zanetti Family.

While the company has shown a nice growth pattern over the last years,  the challenge is its business size. It’s still too small to ensure solid margin expansion, given the considerable amount of fixed costs companies in that sector have to shoulder in order to operate and thrive. But The current gross margin and the FCF level look promising.

The company has a track record of growing through add-on acquisitions, the global coffee market is still very fragmented, and in combination with organic growth, Massimo Zanetti has the potential to bring in the scale to further improve its gross margin and return more cash to shareholders over time.

The current dividend yield is at around 3 %, the latest payout increase was 12 %. Since its IPO in 2015, Massimo Zanetti has more than doubled its cash payments to shareholders. For 2018, the  company  showed a FCF of roughly Eur 30 Mio. and paid out around EUR 6.5 Mio. in dividends. So, paying out less than 25 % of FCF and given its solid growth prospects,  I see there plenty of room for future dividend increases.

The Berentzen Group

Berentzen is a over 250 years old German beverage company, particularily known in central Europe for its sweet apple liqueurs.

Berentzen is a very small business yet it’s quite well diversified, operating in three segments:

• spirits,
• non-alcoholic beverages and
• fresh juice systems.

Berentzen is producing and marketing a range of alcoholic and non-alcoholic products for every taste like

• vodka and other spirits
• fruit juice,
• energy drings,
• mineral water,
• soft drinks like Sinalco and
• iced tea.

Berentzen is well-established in the German market with numerous brands  and the company also markets international license brands. Berentzen has a presence in more than 60 countries around the world with brands like Berentzen and Puschkin and private-label products.

The self service juicers offer the possibility to build long-term customer relationships. The Fresh juice systems are sold to clients such as

• bars,
• coffee shops,
• hotels,
• supermarkets,
• hostpitals,
• restaurants

and in addition to the juice equipment, the company also delivers fresh fruit to these customers. It offers a full range of services like maintenance and consultancy services.

Berentzen intends to pay out 50 % of its profits to shareholders. The current dividend yield is above 4 % after the company has increased the payout by 27 %.

Despite its long history in a typically relatively stable consumer goods sector, Berentzen is also quite an interesting turnaround story. In 2007, Berentzen  generated gross revenues of EUR 432.7 Million and had a negative operating income. The business had been detoriating a few years before and did not adapt fast enough to changing consumer preferences. Reasons for the negative development in the past were strategic differences between the family members which controlled the company at that time. The German private equity firm Aurelius finally acquired all the stocks of Berentzen, realigned the strategy of the company, streamlined processes and diversified the product portfolio and Berentzen quite rapidly returned to profitable growth. In 2016, Aurelius made a private placement of the shares of Berentzen.

Since shares have been publicly traded again, Berentzen has shown good growth despite the challeges particularily small players in the consumer staple business have. The growth trajectory will be somewhat bumpy, but my wife and I see this new stock position as a very interesting long term income play.

 

What abot you fellow Reader, have you added some new positions to your portfolio?

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.