August 2016 dividend income report and the upcoming SABMiller vote

Just three weeks ago I wrote the July 2016 dividend income post and here we already have the August report as none of my stocks pay out a dividend in the second half of this month.

August 2016 dividend income
Here’s a peek at all the dividends I received this month:

  • Colgate-Palmolive: 3.47EUR
  • YUM Brands!: 3.85EUR
  • Kinder Morgan: 4.31EUR
  • Omega Healthcare Investors: 8.35EUR
  • SABMiller: 12.10EUR
  • Novo Nordisk: 7.53EUR

Adding it all up results in dividend income of 39.61EUR for August, this breaks my streak of triple-figure monthly dividend incomes and is well below my typical monthly average. As usual on this blog, all dividend figures are after-taxes.

This month featured the first interim dividend from Novo Nordisk and presumably the very last dividend from SABMiller.

Upcoming SABMiller vote
Shareholders of SABMiller will vote on the proposed takeover by AB InBev on September 28, 2016. As ruled by a UK court earlier today, the shareholders will be split into two classes; one class for Altria and BevCo, and one class for all other SABMiller shareholders.

If all goes well, the deal is expected to be finalized on October 10, 2016. Some minority shareholders were displeased with the financials of the deal, which is one of the reasons why SABMiller pushed for the two voting classes.

Combined, tobacco group Altria and BevCo (the Colombian Santo Domingo family) control 41 percent of SABMiller shares. The Altria/BevCo approval is basically a done deal so all that’s left is getting 75 percent approval from the remaining 59 percent of the SABMiller shareholders. Due to the creation of the two share classes for the merger vote, this effectively means approval will be required from 85.25 percent of SABMiller’s shareholder base, which should quell disputes.

The hurdle becomes a bit more difficult but consensus is the deal will receive the OK. Some minority shareholders are a bit disgruntled though as Altria and BevCo are getting the better deal. Almost a year ago, when AB InBev made its SABMiller takeover offer public, the company proposed a cash offer as well as a partial share offer. The latter is designed for Altria and BevCo, it allows these two parties to keep holding a stake in the new company and removes worries about capital gains taxes.

When the deal was made public, the partial share offer was valued about 10 percent lower than the all-cash offer, so no one really made a fuzz about this. This changed however, as the value of AB InBev’s stock appreciated and as the British pound fell in value after the Brexit approval. AB InBev recently raised its all-cash offer to £45 per share — but at the moment the partial share offer is worth £51.20 per share.

It’s a substantial difference but most SABMiller shareholders, like the institutional holders, will be unwilling to opt for the partial share offer (which is limited to a maximum number of shares) because it comes with a five-year lockup that prevents selling. For a dividend growth investor, this doesn’t sound that bad though.

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One new buy and a potential big headwind

One new purchase: more Diageo shares
I started August with the purchase of ten more Diageo ADR shares,  this increases my annual dividend income by £17.29 (20.66EUR). Diageo is now the second-largest position in my dividend portfolio, it’s one of world’s largest spirits makers with popular brands like Johnnie Walker, Smirnoff, Captain Morgan, Baileys Tanqueray, etc.

Ceteris paribus, I expect to receive after-taxes dividend income in excess of 1286EUR in 2017.This does not take into account future purchases or expected dividend increases.

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Is there trouble on the horizon for Belgian dividend investors?
Will dividend investing still be worth it in the future? It’s one of the questions I asked myself when I read a newspaper article last week about a proposal to dramatically increase dividend tax to enable the Belgian government to lower the corporate tax.

Dividend taxation in Belgium is already quite high, we pay 27 percent tax and there are no exemptions or tax credits. What makes it even worse is that most foreign dividends are double-taxed, dividends from US companies for instance get taxed 15 percent in the US plus another 27 percent in Belgium, resulting in a total tax rate of 37.95 percent.

Dividend taxation in Belgium used to be lower but recent governments have steadily increased the base rate, while also eliminating certain more favorable rates, in effort to raise more taxes. More taxation is on the horizon as our government is constantly in need of more money to balance the budget, but there are also plans to reduce the base rate of the corporate tax. The latter seems good on the surface but unfortunately it could be pretty bad for me.

While Belgium has a high corporate tax rate of 33.99 percent, the effective tax rate can be a lot lower due to measures like the notional interest deduction, the latter saves companies billions in taxes. Some politicians hope to reduce the base rate to 25 percent or even to 20 percent but this is going to require a lot of money. The High Council of Finance calculated that lowering the corporate tax rate to these levels would require the elimination of the notional interest deduction as well as much higher dividend taxation.

So what kind of rates are we talking about? A recent article in De Tijd explained dividend taxation would have to increase to 34 percent or perhaps even as much as 38 percent! Should this come to pass, I would have to reconsider my dividend investing strategy, especially because my portfolio contains mostly foreign companies.

It could be just a false alarm, but I’m afraid taxation is a potentially big headwind.

Finished a book: Dream Big
I finally finished reading Dream Big, a book that describes the rise to success of Jorge Paulo Lemann, Marcel Telles and Beto Sicupira, aka the Brazilian trio behind 3G capital. It’s an enjoyable story that details where these men came from and how they achieved the seemingly impossible. It goes into detail about how the trio formed their unique partnership and how they developed their remarkable management style that focuses heavily on frugality and meritocracy.

Most of the book deals with how they build up Garantia and transformed companies like Brazilian retail chain Lojas Americanas and beer maker Brahma. One of the reasons I was interested in reading this book was to learn more about how AB InBev became what it is today but unfortunately the book wasn’t as detailed as I hoped.

There’s a lot of information about how AmBev was created via the merger of Brahma and Antarctica, and how Interbrew merged with AmBev to create InBev, but beyond that the brevity of the book was remarkable. Among other things, I was hoping for a lot more information about the creation of AB InBev, as well as details about the improvements they made but in these areas the book is rather light.

Next on the list is One Up On Wall Street by Peter Lynch.

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July 2016 dividend income report

Not a lot of time to write a beefier post so I’m going to keep this report brief.

Here’s an overview of all dividends I received in July 2016:

  • Coca Cola: 9.58EUR
  • Royal Dutch Shell: 26.70EUR
  • Philip Morris: 51.74EUR
  • GlaxoSmithKline: 26.64EUR
  • General Electric: 6.36EUR

As usual, the dividend of my London-listed RDSB shares arrived a couple of days late. Adding it all up results in a monthly dividend income of 121.02EUR, the fourth triple-digit figure in a row.

This month is going to be a bit less impressive as none of my big payers send me a dividend in August. I am looking forward to the interim dividend from Novo Nordisk though, this diabetics treatment giant will declare its first interim dividend on August 5. I’m curious what kind of split they’ll use for the interim and final dividend.

Last week I also received several dividend increases.

  • Hershey: +6%
  • Diageo: +5% for the final dividend
  • PZ Cussons: +1.4%
  • Omega Healthcare Investors: +3.45% (its sixteenth consecutive quarterly dividend increase)

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Two buys to start the month and the SABMiller mess

This month I once again split my cash to buy shares of two companies. I think I mentioned it a couple of times before, I still have a bunch of free trades with my broker that expire about 8 months from now so I don’t have to worry about transaction fees when making small-sized purchases.

Two new buys this month
I started my monthly purchases by buying five more shares of biotech firm Gilead, this increases my yearly dividend income by $5.83. The day after I loaded up seven more Diageo ADRs, this buy increases my yearly dividend income by £16.10. The alcoholic beverage maker is now the third largest position in my portfolio.

Brexit impact on my SABMiller shares
The value of another alcohol position in my portfolio got hit quite a bit by the Brexit vote. While the weakening pound is sending shares of companies like Diageo and GSK higher, this is not the case for SABMiller due to the pending takeover by AB InBev. Unfortunately for me, the AB InBev bid was in GBP, I think my shares were up about 10 percent before the Brexit vote but now this has declined to a gain of just 3 percent.

On the bright side, AB InBev’s partial share offer is looking increasingly attractive. Last year when AB InBev announced its final takeover bid for SABMiller, the beer giant offered £44 all-cash or a partial share offer that was valued at £39 at the time. The partial share offer was designed as a tax-friendly option for Altria and BevCo, together these two parties hold 41 percent of the SABMiller shares. By opting for the partial share offer, these two parties can avoid paying the capital gains tax that would come with the all-cash offer.

The curious thing is that the value of the partial share offer has appreciated significantly. On one hand, the value of the AB InBev shares has gone up significantly and on the other hand the value of the pound fell significantly after the Brexit vote. As a result, the partial share offer is now worth about £51.50 — a 17 percent premium versus the all-cash offer.

There are some caveats of course, the biggest one being that these shares will not be listed on any exchange for five years, meaning they can’t be sold or transferred until the lock-up period is over. Secondly, the share offer is limited to about 41 percent of the SABMiller shares, if there’s more demand it will be handled on a pro rata basis.

At the moment I’m not entirely sure if my broker will offer the opportunity to opt into the partial share offer as these shares will be unlisted. This is something I will definitely inquiry about as I don’t mind the five-year lock-up period.

Which stocks or assets did you buy this month?

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June 2016 dividend income report

Another month has passed surprisingly fast. Here in Belgium, June was another very wet month with little sunshine. Hopefully we can catch a bit of summer in the coming weeks.

Here are the dividends in received in June 2016:

  • Unilever: 17.25EUR
  • Hershey: 5.49EUR
  • Moury Construct: 36.50EUR
  • McDonalds: 4.96EUR
  • Royal Dutch Shell: 42.95EUR
  • Gilead: 2.58EUR

In total that’s 109.73EUR for the month of June. This month’s dividend income is lower than it should be as I’m still waiting on the LON:RDSB dividend payout. Most of my Royal Dutch Shell shares were bought via the Amsterdam exchange, those dividends always arrive in time but for some reason my broker almost never gets the dividend of the London-listed shares on the payout date.

What Brexit?

While the British pound saw big drops in value versus the euro and especially the US dollar, the impact on the stock market was surprising to say the least!

Stocks dropped big on the initial panic reaction when trading opened on Friday and dipped a bit further on Monday but after that my dividend portfolio raked in new all-time highs as if the Brexit vote never happened.

While some stocks, and I’m thinking about financials in particular, are still down significantly, I do not have any exposure in my portfolio to this segment of the market. Most stocks in my portfolio rebounded very quickly and unfortunately there were no big opportunities to load up on the stocks I want like Diageo and RB. Fast forward a couple of days and it looks like the aftermath of the Brexit pushed several of my stocks to a higher trading range.

I pasted a chart of Diageo below, there was a gap down Friday, June 24th but later in the session the stock moved decidedly higher in GPB terms. The stock broke out of its trading range and is close to hitting an all-time high in its home currency. Even in US dollars it’s now trading 4.56 percent higher than before the Brexit vote. Sometimes it’s surprising what can be a catalyst for a stock price appreciation.

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Mondelēz launches bid to takeover Hershey

I bought some Hershey shares earlier this year as I liked the business and the price it was  trading at. This position didn’t do much until rumors about a buyout by Nestlé started circulating around the first week of June but on Thursday the stock exploded upwards on news of a takeover bid from Mondelez. Shares reached an all-time high of $117.79 before trading halted. Hershey confirmed they received a $107 cash-and-stock offer from Mondelez but the Hershey board unanimously rejected it.

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Friday’s last trade was at $111.95 as investors are hoping for a higher bid or perhaps even a bidding war. From a long-term perspective, I would like to see the company remain as it is. As Joshua Kennon explains over here (and I continue to be amazed at how fast he can write such eloquent pieces!), a buyout by Mondelez is not in the interest of those who want to hold the stock for many decades to come. I’m not sure if it would fly past antitrust but if this great company has to be acquired by someone, I hope it will be Nestlé.

How was your month?

I picked up some Gilead shares

It’s been about a month since my last buy, dividends kept coming in and I managed to scrape some additional fresh capital together to initiate a position in Gilead. This biotech company is trading very closely to its 52 week low, it has a yield of 2.19 percent and a very low payout ratio of around 15 percent as it’s trading at a P/E of just 7.36

I picked up 10 GILD shares. After taxes this adds $11.66 in yearly dividend income, bringing my 12-month forward looking dividend projection to 1257.47EUR at today’s currency exchange rates. I’m in the early stages of writing a more detailed article about this company, perhaps it will be online next week.

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A look at the dividend history of Reckitt Benckiser

After three months without a new dividend article I finally managed to crack out a new one. This time I took a closer look at British consumer goods firm RB. Its recent dividend growth has been a disappointment but the dividend history is quite interesting as the company increased its dividend by more than five-fold since 1999.

As I mention in the article, I’m not interesting in buying right now as the shares are trading quite high.

Read more: Reckitt Benckiser: A Dividend That More Than Quintupled Since 1999

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