Monthly Archives: August 2016

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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