I love many consumer-staple stocks, but these are areas that tend to flourish when folks get nervous about the economy. After all, when the economy gets weak, people cut back on vacations, not on soap. On Thursday, the Consumer Staples ETF closed at $50.25 per share. That’s a 10% drop in a few months during a largely bullish overall market.
– Eddy Elfenbein (link)
I am searching for alternative-investments to bonds as parts of my “income portfolio”. It’s the part of my portfolio which I expect to do fine in good times an bad times (when people cut back on vacations, not on soap). A lot of Consumer Staples stocks like Unilever, Nestle, Anheuser-Busch InBev and Coca-Cola (link: illusion-of-choice) are all near their 52W-Low.
Lets look at Nestle
Nestle is a global company, founded in swiss in 1867. They started with milk powder for babies and are now offering everything from water, soups, icecream, dogfood, nespressso to milk powder for babies.
According to their 3Q16 Presentation (page 3) their Organic Sales Growth in CHF was 3.3%, their Real Internal Growth was 2.5%. On page 14 you can find growth split by real internal growth and pricing, shown for every operating unit separately (very interesting).
Sales by reginon:
AMS (America) 29 bn CHF
EMENA (Europe) 20 bn CHF
AOA (Asia, Africa) 16.5 bn CHF
(Each geography includes Zones, Nestlé Waters, Nestlé Nutrition, Nestlé Professional, Nespresso, Nestlé Health Science, and Nestlé Skin Health)
Nestle & L’Oréal
Nestle owns 23,07% of the worlds largest cosmetic company L’Oréal (according to LOreal)
L’Oreal is worth about 90,3 bn. € (05.12.2016 ariva.de) so their stake is worth around 20-21 bn €.
Nestle Dividend History
Dividend History (link)
They have a nice dividend history and have risen their dividend in the last 10 Years from 0.90 CHF (2005) to 2.25 CHF (2015)
To sum it up, Nestle is a good diversified, resilient company in an non-cyclical business. It is also a big company which is followed much (I guess getting an information advantage here is impossible for me).
There are selling for:
Numbers according to yahoo finance de
This is the last year chart in EUR. As we see they are down to a 52W-Low. I am not a chart-man but I guess this doesn’t look like a feel-good-chart.
This are some historical dividend data for them
As we can see, one of the highest yields the nestle stock offered in the last 14 years was 3.6% (data from finanzen.net). This don’t make them automatically cheap, but its a good starting point.
Nestlé’s last dividend was 2,25 CHF. I except the next dividend to be 2,3 CHF for 2017. This would translate into a ~3.3% dividend yield at the moment. When looking at the upper table, it is in the “better” range.
Pay out Ratio
They say their Free Cash Flow in 2015 was 9.9 bn CHF, which is pretty similar to “Profit for the year attributable to shareholders of the parent (Net profit)” which was 9.1 bn CHF. Annual Report 2015, page 39
Data from Morningstar (link)
The yields at which these bonds are traded for range from -0,38% (Nestlé Holdings 07/18 CHF) to 2,95% (Nestlé Holdings 14/20 AUD). The highest yield I can find in USD is 2,10%, the highes yield I can find in EUR is 0,42%. (source of information)
Looks like the market expects most risk in a Nestlé (bond) investing comes from currency risk.
I am not expecting skyrocketing results from Nestlé. I see It as a good bond-substitute with a reasonable yield (that goes up as the years are passing by) and don’t go to much down when the market does so. Therefor I am considering changing a/some more holdings of mine into this sector (Consumer Staples). Nestle for me is a good starting point for that.