There’s a particular kind of selloff that stops you mid-scroll. You see a company you know, one that spent years looking untouchable , down nearly 30% on earnings. That’s what happened with Zoetis (ZTS) this quarter, and it’s exactly where Derek and Edgi (EuropeanDGI) spent most of their energy in Dividend Talk Episode 295.
Zoetis was the world’s largest animal health company. Spun out of Pfizer in 2013, it spent the better part of a decade growing double-digits, trading at a premium multiple, and making long-term dividend investors feel very clever. Then Q1 2025 landed — and the market’s patience ran out.
But this episode wasn’t only about Zoetis. Shell (SHEL.L / SHEL.AS) delivered back-to-back dividend hikes totalling 9.1% annualised — a number Edgi called “ka-ching” more than once. Ahold Delhaize (AD.AS) beat on earnings but dropped 6% on a CEO announcement that had Edgi reaching for a put option. And a listener Q&A covered everything from currency debasement to whether H&R Block (HRB) survives the AI era.
Why Zoetis Dropped 30%: A Premium Growth Stock Meets Reality
The Zoetis selloff wasn’t one bad quarter. It was the market finally asking a question it had been avoiding: what happens when a premium growth stock stops growing at premium rates?
Q1 revenue came in at $2.3 billion — flat on an organic basis year over year. Adjusted net income was still up 7%, which is respectable. But the real damage came from one line: US companion animal revenue fell 11% year over year. That’s the business the market paid up for. Dogs, cats, the Cytopoint injection, the Apoquel tablet — these are high-margin, recurring-spend products that were supposed to be recession-proof. Turns out “people always spend on their pets” has a limit when the American consumer is under pressure.
As Derek put it on the show, it’s not that people stopped loving their pets. It’s that some of them are asking: “Does the dog really need this medicine now, or can we hold on another couple of months?” That kind of demand deferral is hard to model and harder to price in — which is part of why the market reacted so severely.
International is holding up well. European companion animal revenue was up 7% year over year, and international livestock grew 12%. The problem is structural to the US segment, and whether that’s cyclical (US consumer stress) or something more lasting is the key question any buyer needs to answer before stepping in.
The Balance Sheet Problem at Zoetis Nobody Wants to Talk About
The revenue slowdown is one story. The balance sheet is another — and Edgi pulled no punches on it.
Long-term debt at Zoetis has grown from $5 billion to $9 billion. A total balance sheet of $15.5 billion is now carrying $9 billion in long-term debt. How did that debt accumulate? Buybacks. Buybacks executed at $150 to $200 per share, right at the peak of the premium growth multiple.
“This is management decision and capital allocation,” Edgi said. “Not understanding that their business may have some cyclicality in there. For me, this is crazy.”
The PE has now reset to around 13x — which is, as Derek noted, “not too shabby” for a business that still generates cash and is growing internationally. But that debt load means the company has limited flexibility right now. Any extended US weakness or a meaningful oil price drop (which would feed through to livestock costs) puts pressure on coverage ratios that were comfortable at $180 per share but look different at $90.
A deeper dive is clearly warranted before making a position move. But for investors who were watching from the sidelines when ZTS was trading at 20–25x earnings, the 30% reset brings it into range. Just go in with eyes open on the debt.
Shell’s Double Dividend Hike: The Mechanics Behind the Headlines
While Zoetis grabbed the drama, Shell’s quarter quietly delivered one of the better dividend stories of the year. A 5% hike in Q1 follows the 4% hike announced back in February — adding up to an annualised increase of 9.1%. For Edgi, whose biggest portfolio position is Shell, this was personal.
But the headline numbers invited questions. Net debt jumped from €45.5 billion to €52 billion. Gearing increased from 20% to 23%. And free cash flow looked weak on the surface. Edgi spent time unpicking the working capital picture, which is where the real story lives.
The €11.2 billion working capital outflow — €5.7 billion of which sits in the chemical and products (trading) business — is mostly a pass-through. Shell’s trading arm acquires oil and gas, books it at current prices, and sells it forward with a margin. It’s not a loss; it’s timing. The cash comes back over the next quarter or two as those positions are unwound.
The one real risk in this picture: if oil prices drop sharply to $50–$60 per barrel before those positions are settled, that working capital advantage turns into a working capital problem. It’s worth watching the Q2 cash flow closely.
The buyback reduction from $3.5 billion to $3 billion quarterly barely registers at these levels — and is arguably the right call. Shell’s share price is around €30. At that price, running a buyback while the balance sheet is absorbing a working capital swing is hard to justify. Edgi’s view: stop the buyback below €30, clean up the balance sheet, restart when the price is right.
Ahold Delhaize, Brookfield & What Else Moved in Q1
Ahold Delhaize (AD.AS) reported net sales of €22.3 billion (up 2% in constant currency, down 4.3% after currency impact), with EPS of €0.62 — up nearly 11% in constant currency. Online sales grew 8.3% overall, with US online up 14.3%. Nothing wrong with the numbers. The share price fell 6% anyway on the news that incoming CEO Frans Müller will be replaced by the current head of Kingfisher — a business Edgi notes has gone “literally nowhere” over its CEO’s tenure, including a dividend cut during COVID. The cultural mismatch between a Dutch-heritage business and an executive from Carrefour and Kingfisher raised flags that aren’t going away soon.
Brookfield Asset Management (BAM) posted fee-bearing capital of $614 billion, up 12% year over year, with a further $137 billion in uncalled committed capital ready to come online. Distributable earnings grew 7% YoY. The Oaktree credit arm is still to be fully integrated this year, which adds another growth vector. Derek owns multiple Brookfield subsidiaries (including BIPC) and described the quarter as strong across infrastructure and energy in particular.
Listener Q&A Highlights: From Wolters Kluwer to Currency Debasement
The Q&A in Episode 295 was one of the more substantive in recent memory. A few threads worth pulling on:
- Wolters Kluwer (WKL.AS) is down to €60. Edgi updated his stock card on it and believes the AI-driven selloff has swung the pendulum too far. The thesis rests on proprietary data and expert tooling that will allow WKL to deploy its own AI agents on top of its existing content. Time will tell.
- Intuit (INTU) vs ADP (ADP) / Paychex (PAYX): Edgi used Claude AI to prepare his own tax filing this year — and said it caught things generic tax software missed, including distributions that were return-of-capital rather than true dividends. His conclusion: TurboTax faces real AI displacement risk. Payroll processing, by contrast, is too embedded and too high-stakes to be disrupted quickly.
- H&R Block (HRB): Derek’s view is cautiously positive — small businesses want certainty and human accountability in tax preparation, and HRB is investing in its own AI tools. AI winner, long-term, with caveats.
- Equity LifeStyle Properties (ELS): A REIT specialising in manufactured home communities, RV resorts, and retirement communities. Both hosts added it to their watchlists. The anticyclical angle (RV travel as a cheaper domestic alternative to international holidays) is an interesting moat argument.
- Currency debasement: A listener asked whether sterling/dollar dividends are genuinely wealth-building when purchasing power erodes faster than yield. Edgi’s honest answer: this is something he’s actively studying. Holding businesses that price in multiple currencies is a partial hedge. So is real estate. So is a small gold allocation.
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Nothing in this post constitutes financial advice. All views are the personal opinions of the hosts and are shared for educational and entertainment purposes only. Always do your own research before making investment decisions.
