The Scandinavian/Nordic Dividend Portfolio

Before you continue reading I  want to emphasize that the portfolio below is no recommendation to buy or sell the mentioned securities. I’m no investment advisor. Please do your own due diligence.

(Several other portfolios are in the pipeline: The international dividend portfolio, the “skin in the game” portfolio and the “compounding” portfolio.)

Below you find my picks for a Scandinavian/Nordic dividend portfolio.

The goal of the portfolio is threefold:

  1. To have an annual dividend that grows equal to or better than the general increase in consumer goods inflation (CPI) over a business cycle.
  2. Keep the capital intact adjusted for inflation (to have price appreciation equal to or better than the CPI).
  3. To have a very low portfolio turnover, probably just a few deletions/additions per year, if any at all.

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This is a long-term portfolio: decades. At 31st of December the portfolio is rebalanced back to equal weighting. Any dividends are reinvested in the same stock. Currency movements are ignored as it depends on your place of residence, wherever that may be.

A word of caution:

‘I don’t think you should ever invest for income. It is a mistake’…….. ‘You shouldn’t just invest for dividends, you should invest in businesses that reinvest their profits to achieve a future growth rate’…..‘However, I realise that for many investors, the idea of realising part of their capital to provide income is anathema.’

– Terry Smith, CIO of Fundsmith.

Historically dividend payers have outperformed non-payers in most markets, at least in the US markets. Thus, dividend growth as an investment strategy has gained a lot of interest, but I call for caution. As I wrote in this article, given two equal stocks, it’s preferable to invest in the one that retain and redeploy earnings compared to the one which distributes most of the earnings (to DRIP/reinvest in other stocks).

Another aspect is that dividends are inherently more risky than a coupon from a bond. As the Covid-19 have shown, many dividend payers with a long history have withdrawn/postponed its dividend. Companies around the world are facing calls from governments to suspend their dividend payouts to conserve cash. Many Swedish companies have suspended or cut their dividends although (in my opinion) they could manage very well without postponing.

You might want to read some further articles I have written about dividends:

Here is companies included in the portfolio (start of the portfolio was 20th of July 2020):

Return %
Date Buy Price per (not including
Ticker Exchange included price 31st of July 2020 dividends)
Addlife ALIF-B.ST Stockholm 20.7.2020 143 123 -14.0
Alfa-Laval ALFA.ST Stockholm 20.7.2020 210.1 207.1 -1.4
Assa Abloy ASSA-B.ST Stockholm 20.7.2020 213.4 191.65 -10.2
Atlas-Copco ATCO-A.ST Stockholm 20.7.2020 410.6 386.9 -5.8
Axfood AXFO.ST Stockholm 20.7.2020 197.7 197.6 -0.1
Castellum CAST.ST Stockholm 20.7.2020 178.75 187.7 5.0
Chr. Hansen AS CHR.CO Copenhagen 20.7.2020 719.8 717 -0.4
Coloplast AS COLO-B.CO Copenhagen 20.7.2020 1095 1076 -1.7
Entra ENTRA.OL Oslo 20.7.2020 128.1 128.1 0.0
Essity ESSITY-B.ST Stockholm 20.7.2020 292.1 288.5 -1.2
Fjordkraft FKRAFT.OL Oslo 20.7.2020 79 81.1 2.7
Gjensidige GJF.OL Oslo 20.7.2020 197 186.4 -5.4
Handelsbanken SHB-A.ST Stockholm 20.7.2020 88.3 82.78 -6.3
Investor AB INVE-B.ST Stockholm 20.7.2020 525.2 516.6 -1.6
Kone KNEBV.HE Helsinki 20.7.2020 66.7 67.24 0.8
Novo Nordisk NOVO-B.CO Copenhagen 20.7.2020 448 416.9 -6.9
Orkla ORK.OL Oslo 20.7.2020 87.18 89.5 2.7
Royal Unibrew RBREW.CO Copenhagen 20.7.2020 620.8 638.2 2.8
Schibsted SCHB.OL Oslo 20.7.2020 259.4 299.2 15.3
Swedish Match SWMA.ST Stockholm 20.7.2020 695.8 673 -3.3

Below you find my reasoning for including the stock in the portfolio:

Addlife (ALIF-B, Stockholm):

A separate article is coming shortly.

Alfa-Laval (ALFA, Stockholm):

  • A cyclical company due to its industrial products and services. Performance needs to be judged on a full business cycle.
  • Strong brand recognition.
  • Highly engineered products.
  • Large customer base and geographical diversification.
  • Alfa-Laval was for a period taken private, and because of this their dividend history only goes back to the accounting year of 2009.
  • However, due to Covid-19 the dividend was cut altogether for 2019. But the business generates a lot of cash, and I expect the dividend to resume later.

I will write a separate article later.

Assa-Abloy (ASSA-B, Stockholm):

  • The global leader in locks, doors, gates and entrance solutions. Huge value in their brand.
  • The dividend for 2019 was cut from 3.85 to 2 SEK.
  • Growth via organic and bolt-on acquisitions. Goal is 10% annual growth over a business cycle, which they have managed over the last decade.
  • Over 300 acquisitions since 1994. Acquisitions are difficult due to different cultures. Assa Abloy seems to manage this very well.
  • Pretty decentralized structure with autonomy for the respective business units.
  • Tailwind from urbanization, increased security and regulation. Regulation is always good for big business, not so much for the small business.
  • Innovative company, 5% of sales allocated to R&D every year.

I will write a separate article later.

Atlas-Copco (ATCO-A, Stockholm):

  • Produces air compressors and other industrial products. All segments have high margins.
  • Has outperformed benchmarks for decades.
  • Reduced the dividend in 1983 and 2018.
  • The dividend for 2019 was hiked to 7 SEK. 3.5 SEK was paid in April 2020, the last half is postponed until the consequences of the corona pandemic are better assessed.
  • A cyclical company, but exceptionally well managed.
  • Managed from Sweden, an industrial powerhouse.
  • 10 year return on equity is 31%, and return on capital invested is 21%.
  • Low leverage, conservative balance sheet. Built to last.
  • Investor AB is the main shareholder, famous for their smart long-term investments.
  • A strong brand and market leader in many of its markets.

I will write a separate article later.

Axfood (AXFO, Stockholm):

  • Boring, but stable business: groceries.
  • Axfood is second biggest in Sweden after ICA (20% market share).
  • “Recession proof” industry.
  • Controlled (50%) by the ax:son Johnson family, thus, family-controlled. The family has a other interest in the retail business, and I believe this is a good owner for Axfood.
  • Axfood has over the last decade grown faster than the overall industry. Growth has been about 5%.
  • The payout ratio has been very high over the last 5 years: about 90%. The dividend yield is because of this pretty high.
  • The dividend has varied from year to year, but grown over many years, as expected.
  • Valued around P/E of 20.

I will write a separate article later.

Castellum (CAST, Stockholm):

  • Owns a highly desirable real estate portfolio with the main concentration in urban areas in Sweden, but mainly Stockholm. Additionally, Castellum owns property in Copenhagen and Helsinki.
  • Most likely the safest and most conservative public real estate company in Sweden. LTV stands at 44%.
  • Castellum has wide geographical diversification, in addition to diversity in types of properties.
  • Small exposure to assumed Covid-19 industries like retail and travel.
  • Public entities are the biggest tenant.
  • Castellum has increased the dividend every year since its IPO (23 years). Most rental agreement are adjusted yearly in accordance to CPI, and thus we can expect this to continue, unless we witness a real estate crash.

I will write a separate article later.

Coloplast A/S (COLO-B, Copenhagen):

  • Global leader in niches, like ostomy and continence care.
  • Tailwind in the form of increased spending on healthcare worldwide. Management estimates market growth of 5% per year.
  • Predictable sales due to switching costs.
  • Very impressive return on capital for a long time.
  • Very high margins.
  • Skin in the game. The founding Louis-Hansen family owns about 20%, but controls about 40% via voting rights.

I will write a separate article later.

Fjordkraft (FKRAFT, Oslo):

  • Electricity provider.
  • From 2017 also a provider of mobile telephony to take advantage of its brand, distribution network and billing/support centres.
  • Fjordkraft scores well as a brand on customer satisfaction.
  • Only listed on the exchange since 2017, but had impressive numbers prior the IPO.
  • 1.4 million Norwegians, both private and business, receive electricity from Fjordkraft.
  • The combination of modest debt and high return on equity (ROE) suggest that the business is high quality.
  • Average ROE over the last five years is 35%, very impressive considering net interest bearing debt has only been between 0-20% of shareholder’s equity. Current P/B is 7.4, indicating you invest at about 5% ROE currently.
  • Fjordkraft’s initial target ambition is to distribute minimum 80% of its net income adjusted for certain cash and non-cash items.

I will write a separate article later.

Novo Nordisk (NOVO-B, Copenhagen):

  • Tailwind from the global “disease” in the form of unhealty wrong diet and inactive lifestyle (or a combination). Seems unlikely that this trend will stop.
  • Just like tobacco, mankind’s inability to delay gratification gives Novo a strong tailwind.

I will write a separate article later.

Orkla (ORK, Oslo):

  • Orkla is a consumer goods company with a leading position in Norway, Sweden, Finland, Denmark and the Baltics.
  • Has a history of transforming itself many times. Started as mining company, but is now a consumer staple, a “mini-Unilever”.
  • Chairman of the Board, Stein Erik Hagen, controls about 250 million shares (25%) directly or indirectly through his daughters. He is a long-term investor.
  • The dividend policy is to maintain a stable and growing dividend. The dividend has never been lowered since at least 1998, but the growth has been low since 2010.
  • Currently valued at around 19 times earnings, something I consider 10% too low.

I will write a separate article later.

Royal Unibrew (RBREW, Copenhagen):

  • Denmark’s second biggest brewer after Carlsberg, but with a lot better operational metrics. Originally a merger between Jyske and Faxe.
  • ROE in the high 20s, ROIC in the high teens.
  • Since 2000 it has expanded into the Baltics, Poland, Finland and Italy.
  • Suspended their dividend in 2014 to reduce debt. Since then resumed and rising.
  • The business model is reasonable “recession-proof”. EBIT for 2020 is expected to be on par with 2019.

I will write a separate article later.

Schibsted (SCH-B, Oslo):

  • Their portfolio of newspapers and websites operates in near monopoly markets.
  • Schibsted placec an emphasis on paying a stable to increasing dividend amount over time. It has been reduced at occasions.
  • Has a huge presence in the online markets with interesting and quality brands with network effects.

I will write a separate article later.

Swedish Match (SWMA, Stockholm):

  • High margins in an asset-light industry.
  • The market is growing. More and more people use snus in its home markets in Scandinavia.
  • The company could be an acquisition target – rumors have been circulating for years.
  • Growth is mainly organic, and almost all cash is handed back to shareholders.
  • The company has managed to grow the dividend at 7.5% annually, and at the same time reduced outstanding shares 32%.
  • Since 2000, the stock price has compounded at 18% the IPO was in 1996).

I will write a separate article later.

 

(I’m long Castellum, Entra, Gjensidige, Handelsbanken, Investor AB, Kone and Orkla.)

Disclosure: I am not a financial advisor. Please do your own due diligence and investment research or consult a financial professional. All articles are my opinion – they are not suggestions to buy or sell any securities.  

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