Welcome to this week’s Dividend Talk recap! In episode 237, we talk about everything from currency fluctuations to navigating a volatile market influenced by global political events. This episode packed insights, stock analysis, and strategies for building a resilient dividend portfolio.

Key Takeaways:

• Currency Risks and “Euro Cost Averaging” (ECA): The podcast highlighted the significant impact of currency fluctuations on European investors, especially with the USD/EUR exchange rate. The hosts advocated for using the term “Euro Cost Averaging” (ECA) instead of Dollar Cost Averaging (DCA) for European investors. They discussed how a weaker dollar can increase purchasing power for US stocks but decrease immediate dividend income.
• Dividend Announcements and Analysis: Recent dividend announcements and cuts from companies like Ricketts Benckiser (RKT), Tales (TTX), Greggs (GRG), and others were discussed. Double-digit dividend hikes for some of Derek’s holdings were a highlight.
• Mitigating Currency Risk: Strategies include portfolio diversification across different currencies, focusing on European stocks (LVMH (MC.PA), SAP (SAP.DE), ASML (ASML.AS)), and understanding the limitations of currency hedging.
• Market Volatility and Political Influence: The impact of political events, particularly in the US, on market volatility was a hot topic. The hosts emphasized the importance of a long-term perspective and focusing on fundamentals rather than short-term political noise.
• Listener Questions and Stock Analysis: The episode addressed numerous listener questions, including dividend tax reclamation, portfolio management, and in-depth analyses of stocks like Target (TGT), Ebro Foods (EBA.MC), and various insurance companies (Munich Re (MUV2.DE), Allianz (ALV.DE), ASR Nederland (ASRNL.AS), NN Group (NN.AS)).

Diving Deeper into Key Topics:

Currency Risk for European Investors:

The USD/EUR exchange rate is a crucial factor for European investors with US stock holdings. A fluctuating exchange rate can significantly impact both the value of holdings and dividend income. The hosts emphasized that while a weaker dollar allows for buying more US stocks, it can temporarily decrease dividend income when translated back to euros. Their advice? Diversify across currencies and consider investing in European companies with significant US exposure to indirectly benefit from the US market.

Dividend Strategy in a Volatile Market:

Market volatility, often driven by political and economic uncertainties, can create buying opportunities. The podcast hosts stressed the importance of maintaining a long-term view and not getting swayed by short-term fluctuations. They recommend focusing on the fundamentals of companies and using volatility to buy quality stocks at a discount.

Stock Analysis Highlights:

• Target (TGT): Discussed as a “slow compounder” with a focus on long-term growth and profitability rather than short-term sales figures. The importance of evaluating operating margins alongside sales growth was emphasized.
• Insurance Companies: The impact of climate change on insurance claims the nature of the life insurance business and its correlation with mortality rates were analyzed.

Six European Dividend Aristocrats For Strong Dividend Growth

ESG and Sustainability:

We shared their scepticism about the effectiveness of ESG reports, viewing them as potentially more about “greenwashing” than a genuine commitment to sustainability. They believe that a company’s culture and behavior are more indicative of its ESG practices than a glossy report.

Listener Q&A Highlights:

• Dividend Tax Reclamation: The complexities and challenges of reclaiming foreign dividend tax were discussed. The hosts advised individuals to attempt the process themselves initially before considering hiring an accountant.
• Smallest Positions: The hosts shared their approaches to managing small positions in their portfolios, focusing on long-term conviction and avoiding stocks that cause undue concern.
• Selling Winning Stocks: The dilemma of selling stocks that have significantly appreciated was addressed. The hosts generally advise against selling winners unless there’s a clear change in the company’s fundamentals or a better opportunity elsewhere.

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