Disclosure: These are personal views only and not investment recommendations. Nothing is an offer to sell securities or advice. For that seek professional help!
We talk a lot about the Dirty Dividend Portfolio, so it’s time for an update.
Dirty Dividends had a good Q1 (+15% YTD) and is +37% over the last 12 months versus 28% for the S&P.
Both returns are great which might be a warning we’ve had it too good.
As a reminder, Dirty Dividends is a portfolio of high dividend yielding stocks which most institutional investors wouldn’t want to own (‘The Untouchables’).
Would you ever think you could beat the S&P by 900 bps owning a portfolio of European banks, oil stocks, coal and tobacco?
Well it turns out you can.
Below is the portfolio composition.
There is almost no trading. Just reinvestment of the dividends.
The Dripping Roasts
But it doesn’t make you any money to talk something which has already moved +37%. That doesn’t do you any good.
More useful would be to flag what looks interesting as a new money buy today. What are ‘The Dripping Roasts’ as the South Africans like to say.
Here is what I think looks especially good.
Reminder! This is just an unprofessional, personal view which you shouldn’t listen to!
Barclays: The other European banks have had a good move, but Barclays has lagged. I wrote about this in We need to talk about Barclays.
Mercedes Benz: It’s insane that Mercedes has a 7% dividend yield + share buybacks. All this bearishness about car sales is already looking wrong for 2024. Sales numbers in the US and Europe through Feb are good. Global new car sales have been depressed since 2017, so there is a set-up for a rebound. Maybe even a multi-year rebound. Mercedes has been giving downbeat 2024 guidance based on a recession, which I don’t think is going to happen. Actually, the opposite.
BP: CFO turned CEO Murray Auchincloss is cranking away at the numbers and doing all the right things to raise the share price. I like this guy! And this $46bn EBITDA target for 2025? Isn’t that massive?
British American Tobacco: I dipped my toe in the water on BAT last year on the view that vaping is slowly turning tobacco companies back into a growth business. I wrote about this is in Who Am I?. The thesis is playing out. The shares haven’t moved, so I am tempted to add to the position. If you can get a 10% dividend yield and then reinvest it into more shares, plus the company is also buying back shares and growing 3-4%, doesn’t that get you close to a 13% CAGR over time? And is it another boost if the shares rerate to a 7% yield as investors realise nicotine isn’t a dying business?
Total & Santander: I kind of want to add to these too.
Killer Slides
I’ve gone through the 2023 results presentations for the stocks in the portfolio, and put together at slide deck of 100 of the top slides.
I picked out slides which highlight why the stock is interesting, and also which will build your global perspective.
Get a coffee and go through them. Much better than reading blogs.
Here are 7 (out of 100) I liked:
#1 Barclays share price below £2 despite a step change in profitability and shareholder returns.
#2 Mercedes Benz is a luxury car company on a 10% free cash flow yield (MCAP EUR 109bn)
#3 Mercedes Benz recognises the future of vehicles might not be all electric. This is a change in tone.
#4 Total is a structurally better business, but is still only trading on a P/E of 8x.
#5 The Nicotine market is growing, driven by the shift to vaping.
#6. Consistent earnings growth, with ROE and buybacks at Santander for 6x earnings.
#7 BP’s EBITDA target of $46bn in 2025? Isn’t this massive for a company with a market cap of $105bn?
Have a good Easter weekend!
Erik
Awesome performance Erik, and I enjoyed your interview with Kevin. A couple of add-ons from me: Hedgeye's consumables team like PM in the tobacco space. Same view as you (smokeless growth) and PM is further ahead than peers in this transition (really just saying you're onto something in nicotine growth vs. PM > BAT). Total dominants blocks in the Orange Basin off Namibia / South Africa (Venus discovery) and this is shaping up to potentially be as big a basin as Guyana, just several years behind. Cheers John.
This is super helpful, Erik. I appreciate your taking the time to explain this in some depth.