The Scandinavian/Nordic Dividend Portfolio

Last Updated on July 3, 2021 by Oddmund Groette

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

Before you continue reading about the Scandinavian/Nordic dividend portfolio, we would like to give a friendly reminder of our paid subscriptions:

The goal of the Scandinavian/Nordic dividend portfolio:

In the summer of 2020, we made a model portfolio of Scandinavian/Nordic dividend stocks.

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). We’re not aiming (necessarily) to beat any index.
  3. To have a very low portfolio turnover, probably just a few deletions/additions per year, if any at all.

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Why a Scandinavian portfolio? We are strong believers in the Nordic stock markets, especially Swedish stocks. Read why here:

This is a long-term portfolio: decades. The portfolio initially has 20 equal-weighted positions of 5 000 SEK each (the portfolio is measured in SEK), but in order to make it real, we later might have fewer or more positions depending on the rebalancing of the stocks. We are totally transparent with the performance (or the lack of it). The portfolio is somewhat defensive in nature and we expect it to underperform in a bull market, but outperform in a bear market.

Any dividends are reinvested in the same stock. Taxes and commissions are not considered. The portfolio is measured in SEK because we expect to have a majority of Swedish stocks. The start date of the portfolio was the 17th of July 2020.

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 we call for caution. As we wrote in this article, given two equal stocks, it’s preferable to invest in the one that retains and redeploys 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 their 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.

We have written numerous articles about dividend investing. Make sure you read them:

The Scandinavian/Nordic dividend portfolio has these positions:

The companies included in the portfolio per 2nd of July 2021 are these (no additions or changes since the start):

The data is based on Yahoo!finance and StockMarketEye. The portfolio performance is measured in SEK.

Company-specific analysis:

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.

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. The 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 small businesses.
  • An innovative company, 5% of sales allocated to R&D every year.

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 its smart long-term investments.
  • A strong brand and market leader in many of its markets.

Axfood (AXFO, Stockholm):

  • Boring, but stable business: groceries.
  • Axfood is the 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 another 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.

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 agreements are adjusted yearly in accordance to CPI, and thus we can expect this to continue unless we witness a real estate crash.

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

  • A 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.

Fjordkraft (FKRAFT, Oslo):

  • Electricity provider.
  • Since 2017 also a provider of mobile telephony to take advantage of its brand, distribution network, and billing/support centers.
  • Fjordkraft scores well as a brand on customer satisfaction.
  • Only listed on the exchange since 2017, but had impressive numbers prior to 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) suggests that the business is high quality.
  • The 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. The current P/B is 7.4, indicating you invest at about 5% ROE currently.
  • Fjordkraft’s initial target ambition is to distribute a minimum of 80% of its net income adjusted for certain cash and non-cash items.

Novo Nordisk (NOVO-B, Copenhagen):

  • Tailwind from the global “disease” in the form of unhealthy 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.

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 a 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.

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.

Schibsted (SCH-B, Oslo):

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

Swedish Match (SWMA, Stockholm):

  • High margins in an asset-light industry.
  • The market is growing. More and more people use snus in their 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 share price has compounded at 18% the IPO was in 1996).

A full article on Swedish Match can be found here.

 

(We’re long Castellum, Entra, Gjensidige, Handelsbanken, Investor AB, Kone and Orkla.)

Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities. You are responsible for your own investment decisions. This webpage is for information only. 

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