Munich Re is the biggest Reinsurance in the world by revenue; it is also one the longest Dividend Aristocrats. He never decreased the dividend since 1970, 46 years increasing or maintaining the dividend.
It’s not a coincidence that the biggest shareholder is Warren Buffett, a well-known investor that he is always looking for profitable and consistent business (like KO, WMT, IBM, AMEX, AAPL…).
Why am I interested in this company?
The answer is SLEEP WELL DIVIDEND; with buying MUV2 you know that you are going to receive your dividend in May every year.
It’s not going to be the highest yield ever (however is around 5.3%) but it’s very safe and growing, to help maintain this policy the company is consistently purchasing its own shares (around 3-4% this year).
This model, quite common in the North American world, is quite powerful for any investor:
- The share price grows, your investment grows along
- The share price decline, the company reduce the number of shares and it makes easier to grow its dividend even more
- Until they keep paying the dividend, shareholders never lose
Few reasons makes me believe this could be possible:
- As confirmed by latest stress test, it’s a very solid and healthy bank
- With 10B€ of extra cash
- Its stable revenue generation reminds me the one from Wells Fargo
- Limited exposure to investment banking
- Strong commissions based revenue
- And increasing Insurance business
- Opportunity can be captured from weak competitors that are now suffering in their recapitalization or reorganization
- As Peter Fischer teaches us, pick always the best, the strongest and the most efficient of a specific industry that for a period is struggling
- European Banking is under pressure and the best ones not only will survive but also will get bigger and stronger
- Intesa SanPaolo will be one of them
- Management has been always prudent and created strong fundamentals and a very professional team
- On top, the current CEO is very shareholder friendly avoiding any expensive acquisition and focusing in making business more efficient and profitable and distributing as much money as possible to its shareholders
“The Fab 4”
- Free Cash Flow yield very consisten
- Even if I am very demanding with 10% free cash flow yield, Intesa passes this condition easily as it will earn way above 0.20€ this year in Free Cash Flow
- This will allow the company pay this massive dividend of 0.18€
- Debt or Financial solidity
- As mentioned, Intesa is one of the healthies bank in Europe
- Not only they passed the stress test, but they are above the threshold for 2018
- All the money exceeding this threshold can be used for dividend
- Strong and trusted management
- Historically Intesa management has been prudent and saved the company from scandals and financial issues
- Since 2014, they put in place a business plan to compensate shareholders
- Margin of safety
- Many analysists think alike, considering ISP one of the best options in the European spectrum
- Today target price is 2.62€ more than 40% above current prices
Evaluate the opportunity
If everything goes well, I would like to keep Intesa for the next 10 years and compounding their dividends giving enough time for interest and inflation to come back and push Banking sector earnings.
At current value, Intesa is an opportunity based on dividends and price revaluation. The chart above could resume potential return:
This chart shows that in 10years you could be able to collect around 20% from current prices.
But it’s not over yet. If you wanted to reinvest the dividend, it could be even higher:
- More than 30% of you invested originally
- for example: from 2.000€ with 1.000 shares, you could receive 575€ of net dividend
- Invested capital could achieve 1.700 shares and 12.000€ (6 times more)!!!
The beauty of a dividend investor is that if ISP share price will not increase that much, you could increase your yearly dividend even more. In case the company keeps paying the dividend, the slower its share price grows the easier is for you to collect more shares and increase your dividend even higher.