December 2016 dividend income

Hard to believe but 2016 has almost passed. Dividend income is growing at a steady pace and since the US elections my portfolio has soared to new heights. It’s been a very busy month, there are so many things on my to-do list but unfortunately there are only 24 hours in a day.

December 2016 dividend income

  • Unilever: 17.96EUR
  • Hershey: 6.21EUR
  • Coca Cola: 10.35EUR
  • Royal Dutch Shell: 75.36EUR
  • McDonalds: 5.57EUR
  • NVIDIA: 1.58EUR
  • Gilead: 4.45EUR

Because I live in Belgium, all figures are converted to euro and I list the net income after all applicable taxes. In total, my December dividend income hit a level of 121.48EUR, bringing the total 2016 dividend income to a sum of 1347.08EUR.

Dividend increases

  • General Electric increased its dividend by 4.3% to $0.24 per quarter.

New buys

I used a combination of dividend income and some leftover cash in my account to add three shares of Nike (NKE).

Earlier this week I started reading Shoe Dog, a new memoir written by Nike founder Phil Knight. It cover his trip around the world as a young adult in the 1960s, how he got into the shoe business, the start-up days of Nike and the company’s rise to fame. I’ve only read about 1/8th of the book so far but if you enjoy this sort of books I think this one is definitely worth the read! It’s well-written and Knight’s backstory is more captivating than I imagined, it’s hard to put this book down.

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Happy holidays to all my readers and best wishes for 2017!

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November 2016 dividend income report and a small buy

Earlier today I received my interim dividend from Van de Velde, so this month’s dividend income is now finalized.

November 2016 dividend income:

  • YUM! Brands: 4.27EUR
  • Omega Healthcare Investors: 8.78EUR
  • Colgate-Palmolive: 3.58EUR
  • Kinder Morgan: 4.45EUR
  • AB InBev: 19.86EUR
  • Van de Velde: 37.45EUR

In total that’s 78.39EUR in dividend income for the month of November. I’m not sure if next year will be at the same level, I’m still a bit uncertain if AB InBev will keep its dividend at the current level. It would be smarter for the company to focus on reducing its debt at a more rapid rate by temporarily cutting the dividend to a lower level.

Additionally, I still regard the interim dividend from Van de Velde as a one-time item. The company is paying out all cash it doesn’t need to its shareholders. The base dividend is very safe but I’m not confident if they can keep the total dividend at the same level for much longer. As such, I do not include the interim dividend from Van de Velde in my 2017 dividend income projection to keep it a bit more conservative.

My 2017 dividend income projection

Earlier this month I adjusted my dividend income projection for the higher Belgian tax on dividend income (from 27% to 30%). Based on my current investments, the present dividend payouts, the current currency exchange rates and without taking any growth or reinvestment into account I reach a figure of 1364.56EUR. The mental goal I have in mind for 2017 is dividend income 1500EUR.

So far dividend income is increasing faster than what I modeled a year or two ago, primarily due to a higher level of savings. Increased taxation has been a major headwind, since I started with dividend investing the Belgian dividend tax increased from a level of 25 percent to 30 percent. Therefore I’m increasingly shifting my focus to stocks with lower yields, which will result in less future dividend income in favor of higher capital appreciation (which is still untaxed).

Another headwind is that in the short-term, the dividend growth potential of a lot of the stocks I’m invested in doesn’t look that good. Too many names in my portfolio with a frozen dividend or dividend growth that has decelerated to a low single-digit rate.

Recent dividend increases:

  • Nike: +12.5%

Another nice dividend increase from Nike this month.

One small buy: WDP

Since my last blog update I’ve allocated a bit more money to Warehouses De Pauw (EBR:WDP), a Belgian REIT specialized in industrial real estate like distribution centers and warehouses. Last week the company announced a capital increase, they created 190 million EUR worth of new shares to fund expansion plans. This includes 120 million EUR of pre-let investments in the Netherlands.

WDP also confirmed its 2016 outlook, the REIT is on track to deliver EPS of 5.30EUR and a dividend of 4.25EUR per share, which represents a 6 percent increase versus last year. The 2016-2020 growth plan calls for a portfolio growth of 1 billion EUR — of which they already secured 330 million EUR. For book year 2020, this should result in 25 percent earnings per share and dividend growth versus book year 2015.

I participated in the capital increase, five more shares of WDP will find their way to my account on November 28. These shares were issued at a price of 75EUR, a 6.7 percent discount versus the closing price before the capital raise announcement was made.

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How was your month?

November additions: YUM China, Novo Nordisk and NVIDIA

My portfolio has seen a couple of changes this month, here’s an update about some of my new additions with some random thoughts mixed in.

Back into YUM + YUM China after the spin-off
As I discussed in my September dividend income post, spin-offs of foreign companies are almost always taxed at the same rate as dividends here in Belgium thanks to our inane (discovered the word “inane” some time ago and I love it!) tax laws. This is why I temporarily exited my YUM! Brands position. After the distribution date, I bought back my YUM shares and added YUMC shares. In fact, I used some fresh capital to slightly increase my position in the new YUM China as a way of giving China some extra weight (but still very small) in my portfolio.

YUM announced a hefty dividend increase right before the YUMC spin-off but at the moment it’s unknown whether the combined payout  of the two entities will be the same or lower than before.

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Novo Nordisk becomes a value play
Shares of diabetes leader Novo Nordisk have seemingly fallen off a cliff this year, despite the company being on track to deliver its best year ever. While the company’s financials are still going strong, investors are put off by the firm’s drastically reduced long-term outlook. In February, Novo Nordisk reduced its long-term target for operating profit growth from 15 percent to 10 percent, and last month the target got reduced to 5 percent.

While demand for the company’s products is still growing rapidly, the drug-pricing war has dimmed future prospects. Payers are no longer willing to pay up for convenience, which probably also resulted in Novo Nordisk’s decision to cancel further development of its innovative oral insuline treatment. We may never know if this insulin tablet effort would have been a viable alternative for insulin injections, but it’s sad for the millions and millions of diabetics who now no longer have a prospect of being able to abandon needles sometime in the future.

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As a result of the big share price drop, Novo Nordisk is no longer trading at a premium versus the market but at a nice discount. While it’s a bummer for investors who recently bought shares, it does make Novo Nordisk’s buyback program more effective. The dividend yield is currently a hefty 2.8 percent but unfortunately Danish withholding tax is 27 percent.

One thing is for sure: the diabetes and obesity epidemic isn’t going anywhere. Versus a lot of the no-growth or low-growth blue chips I see potential for more than satisfactory long-term returns at Novo Nordisk’s current valuation so I bought 45 more shares this week.

NVIDIA: A stock for the future?
The sector breakdown of my portfolio looks very different from what you see with a broad index like the S&P500. I own no financials, have no exposure to the traditional utilities nor do I have any telecoms sending me regular dividend checks. Since the financial crisis I never felt the need to get into banks, they’re boring, hard to analyze and I see no need to diversify just for the sake of diversification. With high dividend taxes in Belgium I also no longer feel the need to own telecoms with high dividend yields and in case of power utilities I have some doubts about how some trends like renewables and energy storage will impact their long-term performance.

Another segment I didn’t have exposure to was IT/technology, but that changed this week with the purchase of NVIDIA shares! There are several interesting names in this space that I would like to own, even non-dividend paying stocks like Google, but so far nothing really popped up on my radar.

I  know Apple is one of the most-owned technology stocks by dividend growth investors, the valuation looks attractive but I must admit I never really liked the company. Against my expectations, they’ve had a very good run the past decade but I have doubts about what they’re going to achieve in the future. Apple does have lots of cash but they lost their visionary leader and I do not think they have a sufficient moat in the smartphone market, which is the company’s biggest profit driver. Of course, even companies with declining sales can wildly outperform the S&P500, but at the moment I feel no need to own Apple.

My ten-bagger that wasn’t…
This post is getting longer than I intended it to be so let’s cut straight to the chase. One stock that’s been on my radar for some time is NVIDIA. I think I once read a quote about how it’s not the stocks you buy but the stocks you sell that you’ll regret. In case of NVIDIA this is totally true. It’s hard to believe right now but last decade I was sitting on top of over 600 shares of NVIDIA.

I was still quite young at the time and because I wanted to save money for a house I sold these shares less than a year later. At the time I predicted strong growth for PC gaming,  a continued market dominance for NVIDIA and the potential for strong growth in non-gaming segments. The road was bumpy but over the years it played out exactly as I expected. Had I held these shares it would have been a ten-bagger (partly helped by the stronger dollar) and the shares of this one company alone would be worth more than the entirety of the stock portfolio I own today.

It’s a good illustration of how the outperformance of a couple of stocks has the potential to transform a portfolio. A lot of the sentiments I had about NVIDIA last decade still ring true and I still follow the company closely — even though I’m no longer a gamer. They’re as strong as ever in PC gaming, I have a lot of confidence in the CEO and the company is seeing massive growth in non-gaming segments.

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When I look at the future, I can see several trends playing out right now that I think are going to be very disruptive for the economy and the world in general. One one hand I see a very bright future for solar and wind energy, both are getting closer every year to the point it will be a no-brainer in a lot of parts of the world to deploy them en masse. Next there’s electric cars, they’re still quite expensive but in a not-too-far-away future new car buyers will look at the total cost of ownership and most people will decide to go electric because it won’t make sense to pay more for an old-fashioned  gasoline or diesel car.

Another disruptive field that’s a bit harder to grasp is artificial intelligence. It’s a term that’s been around for ages but the last couple of years a lot of the pieces of the puzzle are starting to fall together. It’s easy to see how self-driving cars will revolutionize the world, and have a huge impact on the job market — and that’s just one of the many applications of this new wave of innovation. NVIDIA’s GPU-based platforms are well-positioned to ride this wave and the company is seeing massive growth in not only its datacenter and automotive segments, but also in its traditional gaming segment.

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A total of 19 NVDA shares landed in my portfolio. While NVIDIA does look expensive when you simply check the current P/E, this week’s earnings report suggests that on a forward basis, it doesn’t look expensive at all. This quarter NVIDIA beat it out of the park by growing its earnings per share by a huge 104 percent versus 2015.

It’s also nice to see the company has no net debt on its balance sheet, and a rather strong cash position. The company doesn’t have a long tradition of paying a dividend, they introduced one in 2012 and over the last four years it has nearly doubled, to a level of 14 cents per share.

The dividend yield is really low but the firm has a low payout ratio. This doesn’t really bother me anymore, after the Belgian government decided to hike dividend taxes for the second time in two years I decided to put less emphasis on current yield and a higher priority on growing capital to be able to buy the income I need in the future.

Dividend income projection for 2017
My last calculation says I’m on track to receive 1323.29EUR of dividend income in 2017. I just updated my spreadsheet to account for the increase in Belgian dividend tax (from 27% to 30%) and it’s pretty sour to see this tax increase is going to cost me an estimated 53.14EUR. At this rate, all my dividend growth is going to the tax man.

The US election
As someone from Belgium looking at the US elections, what surprised me most about this run was how confident the media and pollsters were about Clinton ending up in the White House. Not just in the US but especially here in my own country, where a very large percentage of the population couldn’t imagine Trump winning.

I think a lot of people look at the world as they want it to be rather than how it really is. This isn’t always easy but I try my best. Ever since Trump started working his magic during the primaries I thought he had a pretty good chance of winning. There were some times when things took a turn for the worse for his campaign but somehow Teflon Donald always managed to prevail.

While I don’t agree with all of Trump’s views, specifically several economic issues and some views on scientific matters, I think that on aggregate he’s not going to be as bad as a lot of people expect. My guess is there will be a big difference between the street-fighting candidate and president Trump.

Another surprise is how the market responded to Trump winning the election. All markets went deep into the red when it became clear that this was the Brexit scenario all over again, but then things started recovering and Trump’s victory speech calmed everyone’s nerves. The European stock market opening wasn’t that bad and by the end of the day the US stock market was on its way to a new all-time record.

While the US stock indexes are trading at or near all-time highs, there is quite a bit of difference between various segments of the market. For example,  a lot of dividend stocks got punished quite severely this week, presumably due to the increase in bond yields.

We’ll see how it goes.

Which stocks did you buy recently?

October 2016 dividend income report and a new buy

Another month has almost passed, there are no further dividends on this month’s radar so it’s time for my dividend income report!

October 2016 dividend income:

  • Philip Morris: 53.24EUR
  • Diageo: 67.15EUR
  • GSK: 23.32EUR
  • PZ Cussons: 7.69EUR
  • South32: 0.41EUR
  • Coca Cola: 9.68EUR
  • General Electric: 6.52EUR

Adding it all together results in after-taxes dividend income of 168.01EUR, which is an above-average month thanks to payments from companies that have a bi-annual payout, the most prominent one being my large Diageo position.

The South32 dividend was a bit of a surprise.This is a spin-off from BHP Billiton, they didn’t pay out a dividend last year and because the position is so small I didn’t really keep track of what this company is up to. The 0.41EUR is not a lot but it’s nice to wake up one day, log into your account and discover a company decided to send you a bit of money.

Recent dividend increases:

  • Omega Healthcare Investors: +1.67%

Like clockwork, OHI delivers another quarterly dividend increase.

New buy: Nike

Earlier this month I added 25 shares of Nike to my portfolio. This doesn’t bring in a lot of dividend income because Nike has a low payout ratio but it does offer higher growth prospects. A more detailed post about Nike may or may not follow in the coming weeks, depending on how much time I have available to write it. Often it feels like 24 hours in a day just isn’t enough. It’s been some time since my last dividend growth stock article on SA but I hope to be able to finish a post about Brown-Forman before the end of the month. Deadlines certainly help to get work out.

I don’t think there’s still a lot of Nike clothing in my closet but they do make some nice stuff.

Image courtesy of Nike For Girls

Belgian dividend tax going up… again
Unfortunately, the latest round of budget planning from the Belgian government was bad news for dividend investors as the coalition in charge decided to increase dividend taxation to a whopping 30 percent, three percentage points more than the current rate. What’s particularly sour here is that they already raised the rate from 25 percent to 27 percent last year, and that government couldn’t even agree to lower corporate taxes.

A slight glimmer of good news is that the Belgian government will abolish the infamous speculation tax in 2017. Last year the Christian democrats pushed hard for some sort of a capital gains tax and the speculation tax was their consolidation prize. In a nutshell, gains made on certain financial transactions like stocks were taxed at a 33% rate if you sold within the first 6 months. Losses on other transactions were not deductible.

The speculation tax was little more than yet another round of bullying the small investor, people changed their behavior and there were a lot of loopholes and workarounds (CFDs for example). The net result was a big loss of liquidity for small and mid-cap shares and, as a lot of people expected, the speculation tax did not bring in any money, it actually resulted in a loss because government collected a lot less transaction tax than the year before.

Last year, government claimed the speculation tax would bring in 34 million EUR but recent estimates from the financial press estimate this folly resulted in a tax loss of 100 million EUR due to a combination of lower transaction tax and less corporate tax due to the impact on the profitability of brokers and banks. The latter had to make a lot of extra costs to adjust their IT systems to implement the speculation tax, which also had to be done on a tight schedule because there wasn’t a lot of time between the implementation date and the publication of the finalized version of this tax.

Of course, it also soured investor sentiment and disrupted whatever was left of the sense of a stable investing climate. Furthermore, there was also a lot of lingering uncertainty as there was no final decision about whether options would be taxed or not. For example, just a few months ago there was still talk about a possible retroactive application of the tax on options. But today,  ten months after the introduction of the speculation tax and two months before it will be axed, the finance minister finally confirmed options will not be taxed. You just can’t make this stuff up!

Unfortunately, we’re not entirely out of the woods yet.  The Christian democrats are still pushing strong to outleft the left by calling for the introduction of a capital gains tax. Before our current government, which has been in power just two years now, socialist parties were in government coalitions for roughly a quarter of a century. Now they’re back in the opposition and suddenly the left is screaming bloody murder for more taxes on “the rich” and “fairer fiscal policy” (read: more taxes on small investors).

While they pat themselves on the back, all I’ve seen over the last couple of years is that my overall tax level has gone up and that government still can’t balance its budget (which doesn’t even include the massive cost related to the inflow of asylum seekers and the extra security measures following the Brussels bombings because this is kept off budget).

/rant

How was your passive income in October?

September 2016 dividend income report

It’s been some time since I lasted updated the blog. I was meaning to post an update after I published another article at Seeking Alpha but due to time constraints I’ve still not been able to finish this article. Although I did increase the frequency of my Twitter posts!

I use my DaC Twitter handle to share news about stocks I follow, interesting economic developments, some politics here and there, and other stuff I find interesting. That includes the recent Elon Musk speech about making humans a multi-planetary species, absolutely fascinating stuff from one of the most inspiring entrepreneurs of our generation.

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September 2016 dividend income
The end of the month has arrived so it’s time to add up all the dividends I received this month for the monthly dividend income report. All figures are in euros and after all applicable taxes.

  • Unilever: 16.60EUR
  • Hershey: 5.80EUR
  • McDonalds: 4.91EUR
  • Royal Dutch Shell: 71.32EUR
  • BHP Billiton: 4.56EUR
  • Gilead: 4.14EUR

In total, I received a dividend income of 107.33EUR in September 2016. Overall September was a pretty solid month in terms of dividend income.

Recent dividend increases:

  • Philip Morris: +1.96%
  • McDonalds: +5.62%

Not really big surprises here. Philip Morris continues to suffer from the strong US dollar, which doesn’t give them a lot of room to increase the dividend. The McDonalds dividend hike wasn’t very big either, but still decent enough and roughly in-line with expectations.

Upcoming events for my portfolio
Two upcoming events required a bit of attention.

First up is AB InBev’s takeover of SABMiller. As I mentioned some time ago, I purchased SABMiller shares last year to speculate on the takeover but unfortunately the Brexit vote eliminated most of my gains due to a big drop of the British pound versus the euro. The offer has an all-cash and a partial-share alternative. Due to the currency fluctuations and a big increase in the share price of AB InBev, the latter option is valued quite a bit higher now than what it was a year ago. The downside is the share-based offer comes with a five-year lock-up. I instructed my broker to pick the share-based offer for my shares because I want to build a long-term position in AB InBev.

Another event in October is the YUM! Brands spin-off of YUM! China. For Belgian investors foreign spin-off operations are a disaster because by default, the Belgian tax man considers spin-offs as a taxable event. It’s taxed at the same rate as a dividend, so if I keep these shares I need to pay 27 percent on the value of YUM! China shares.

Of course, this tax is totally pointless because it can easily be avoided by selling your shares before the date the spin-off become effective. If I recall correctly, YUM! China accounts for about 35 percent of the YUM! profits so a quick calculations learns that if I keep these shares, I probably need to pay a tax equal to almost 10 percent of the value of my current YUM! holdings. Absolutely insane so this means I’ll be selling my YUM! shares sometime next month.

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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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