Stocks of big pharmaceutical companies have been core holdings in many portfolios for as long as I can remember, probably even beyond that. The reasons are crystal-clear: an ever aging population, more chronic diseases also among younger generations, stable to slightly rising demand throughout the business cycle, relative price stability of those stocks and reliable dividends. What’s not to like?
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Even though I know that I certainly won’t make many new friends with this article, especially not from the ranks of dividend investors, it is a duty for me to address this topic. I also think, it’s no coincidence that my most popular article to date has been about looming dividend cuts. Simply put, it’s too important to be ignored.
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Altria is a stock from the illustrious circle of the “dividend kings”. It is even so special that it has actually raised its dividend more than once a year over the past half century – 57 increases over 53 consecutive years. However, the last few years have been disappointing in operational terms. Recent results, in particular, have shown the direction this company is likely to take. There are still a few puffs left, but don’t be surprised by the impending dividend cut at this darling of many dividend investors.
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In the past, this question was a no-go. On several occasions, speculation about at least a sale of non-core business units was put on the table, but quickly buried again. Over time Deutsche Bahn has accumulated so much debt that its barely profitable core operations cannot handle these obligations. An eternal zombie existence on government life support is not a viable solution. And then there is the ambitious investment offensive to modernize and expand the existing rail infrastructure. Is it finally time to break up Deutsche Bahn?
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Being dead and being alive are mutually exclusive conditions. But with stocks, there are companies that to a large extent fit into this scheme. Now facing a heavily toxic cocktail of likely higher interest rates and a slowing economy, many of these businesses will be tested for their survivability. Even if they do survive as a whole business, it is nonetheless dangerous to invest into equities of heavily indebted zombies – no matter how high the temptation might be.
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Physical retail stores as a whole in most developed countries have more likely than not reached their peak. However, there is a sub-category in this sector that is expanding quickly. More than that, the so-called “dollar stores” have even been beneficiaries of a diminishing middle-class. Are the respective stocks a good investment idea, especially as inflation is trimming budgets?
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If you ask people about inflation-proof investments, the answers are most likely energy, real estate, precious metals or nowadays maybe even cryptocurrencies or rare whisky bottles. What is less obvious and very underestimated is farmland. It has proven to be not only a very effective hedge against inflation, but also over the last 25 years outperformed the S&P500 while being less volatile. What about farmland stocks?
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Who would complain being relieved of their debt burden? With inflation reaching a 40-year high in many regions, it seems that not only is the purchasing power of money eroding, but so is the burden of debt, measured in real terms. But is it really wise to buy stocks of companies with a lot of debt and hope they pay it off with cheaper money?
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Maybe you have heard that there are companies that “diversify” their assets into Bitcoin out of “fiat money”. Will the stock of Microstrategy go up together with Bitcoin? What sounds like a good idea at first sight, however, could be a costly and dangerous adventure for inexperienced stockholders.
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