Creating a successful retirement portfolio is not an easy task. Based on our US retirement portfolio, we will provide more insights into building a European retirement portfolio. In the coming weeks, you can follow along the selection of some solid “retirement dividend stocks”. This week, we will start with the first three dividend stocks.
Let’s start with our main objectives.
The two main objectives of our new Retirement Dividend Portfolio is to preserve capital and deliver a safe dividend yield above the market’s average. Dividend growth is expected to be moderately, and the portfolio should keep up with the broader market over time. So, the composition of this conservative portfolio for retirees will be constructed based on the following principles:
- Diversification in several sectors and minimum exposure to 20 stocks
- Average dividend yield 2.5% – 4.0%
- Average Dividend growth rate 4%+
- Average loss ratio 1.8-2.5 (see defensive aristocrats)
Holdings are rarely sold and managed with a “buy-and-hold investor” mind-set. The aim is to buy and hold positions for at least 3-5 years. If the fundamentals of the company structurally change or stock valuation reaches excessive levels, a holding could be sold. The portfolio is expected to underperform in bull markets and outperform in bear markets due to its defensive nature.
In the end, we created the Retirement Dividend Portfolio, so customers can follow a selection of “conservative” dividend stocks. Some investors could mirror the portfolio holding for holding, but others use the list to generate investment ideas and make sense of trends and risk/returns in their own portfolios.
If you decide to mirror the portfolio (once completed), our recommendation would be to invest equally across all holdings. This provides diversification between stocks, sectors. Preferably the value of one individual stock is always below 5%-8%. Some holdings may appear undervalued and some overvalued, so we provide some guidelines/rules on when to buy or not to buy.
Retirees are often looking for a stable income stream, stocks with an excellent yield, and a good track record of dividend payments. Those elements are also the foundation of our retirement portfolio. Diversification is a good approach to reduce risk. This can be achieved by selecting a minimum of 20 stocks and from different sectors. Since this retirement portfolio is solid based on stocks, please ‘don’t put all your eggs in one basket‘ and invest in other asset classes as well, e.g. bonds or real-estate.
Let’s look at three European dividend stocks to start our retirement portfolio with:
Sanofi
| Dividend Yield | 3.9% | Sector | Healthcare |
| Years Dividend Growth |
25 | Payout Ratio | 35% |
| 5 Yr Avg Dividend Growth | 2.0% | ISIN | FR0000120578 |
Sanofi provides therapeutic solutions and is the 7th largest Pharmaceutical company in the world by revenue (€40.46 Bln). The company was formerly known as Sanofi-Aventis. The company was incorporated in 1994 and is headquartered in Paris, France.
Sanofi has a broad program of drugs & vaccines, a strong cash flow, and a robust pipeline which should be sufficient for further sales growth and a stable dividend. Sanofi has also increased its operating earnings per share outlook. The pharmaceutical company is now aiming for profit growth of 7%-8%. It has been able to grow its dividend payout over the last 2 decades. Here is the dividend paid for the last 10 fiscal years.
The current dividend yield is close to the 5-year average dividend yield (3.87%), this indicates the stock looks reasonably valued today.
Roche
| Dividend Yield | 2.8% | Sector | Healthcare |
| Years Dividend Growth |
33 | Payout Ratio | 60% |
| 5 Yr Avg Dividend Growth | 2.0% | ISIN | CH0012032048 |
The Swiss pharmaceutical Roche (ROG.SW) has a very impressive track record. The company has a long history of steady dividend increases. In fact, Roche would qualify as a true European Dividend Aristocrat with 33 years of consecutive dividend increases. See our in-focus article on Roche.
Roche’s strong brands and more important in this business its pipeline have helped to generate revenue growth consistently each quarter, over the past years. The average growth has been in the high-single digit range (6%-9%), with a Covid-19 dip in q2-2020.
Source: Roche q3-2020 report
According to analysts, Roche should be able to grow with an average of 10% for the next 5 years and a payout-ratio around 50%. Roche’s management has the ambition to further grow its dividend in CHF.
Ahold Delhaize NV
| Dividend Yield | 3.9% | Sector | Consumer Defensive |
| Years Dividend Growth |
12 | Payout Ratio | 53% |
| 5 Yr Avg Dividend Growth | 9.6% | ISIN | NL0011794037 |
Koninklijke Ahold Delhaize N.V. operates retail food stores primarily in Europe (Belgium, Netherlands) and the United States. The company’s store formats include supermarkets, convenience stores, compact hypermarkets, cash and carry, drugstores, hypermarkets, and wine and liquor stores. Ahold’s strategy is to position itself as an omnichannel retailer and includes the brand bol.com. Ahold Delhaize N.V. was founded in 1887 and is headquartered in Zaandam, the Netherlands.
Ahold reported strong Q3-2020 results and was able to increase sales during COVID-19. 2020 underlying EPS outlook is raised to growth in the high-20% range; continue to expect free cash flow to be at least €1.7 billion. It also has announced a new €1 billion share buyback program to start at the beginning of 2021. The balance sheet looks strong with little long-term debt apart from leasing obligations.
Source: Q3 2020 Earnings
Ahold has been able to increase dividend payouts for 12 consecutive years now. As of 2019, Ahold Delhaize commits to semi-annual dividend payments (April and August).
Retirees are often not only looking for a stable income stream from their portfolio but also a cash flow per month. Here is an overview of the default months when the three companies will go ex-dividend.
- Ahold Delhaize paid a final dividend of €0.47 in April and an interim dividend of €0.50 in August.
- Roche paid 9.00 CHF in March 2020.
- Sanofi paid €3.15 in May 2020
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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