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Dividends: Sweden’s finest

2016 has started in a terrible fashion for investors. Stocks are down sharply and the short-term outlook seems uncertain. However, as always, the bad brings some good with it as well. For the long-term investor, entry into high-quality stocks has become more attractive now. Not the least when you consider that interest rates are still virtually around zero. We argue that the reasonable approach right now is to look at dividend titles to create a decent yield for your hard-earned money.

We have received many questions regarding a Swedish dividend portfolio in the past and believe that now is the right time to share our thoughts on the topic. The beauty of it right away: a basket of high-quality companies with a good dividend yield is not only giving you a good yield short-term, it is also the best approach to achieve long-term investment gains, with an important factor being the “miracle of compounding”.

images-2In this report we will give a short introduction into the concept of compounding and highlight Swedish companies that we believe deserve a spot in a long-term dividend portfolio. We have identified nine companies that we believe make up a great combination of current yield, yield growth potential and quality operations. We are also aiming for a broad sector diversification to spread the risk. Furthermore, we are adjusting the portfolio allocation according to size, history (track-record), nature of business and industries. At the time of writing, the proposed portfolio offers an expected dividend yield of 5% – not bad in a zero interest environment!

The miracle of compounding:

Investing SEK 1,000 with a 10% return per year gives us a simple return of SEK 100 per year which we spend. After 10 years we would have generated a total of SEK 1,000 in return. In the case of compound return, we assume that the money earned by our investment each year is reinvested in the same investment, rather than spent. In this case, after the first year, we would have the original SEK 1,000 plus an additional SEK 100 for a total of SEK 1,100. In year two, we would received a 10% return on SEK 1100, rather than only SEK 1,000. Assuming all of the earnings are reinvested over a ten-year period, the total gain for the ten years would be SEK 1,594, rather than SEK 1,000 for the simple return. The longer you keep on reinvesting your return the more pronounced the compounding effect will become. After year 20, 10% annual gains compound up to SEK 5,727 in profits. All that with an initial investment of SEK 1,000.

Some of you might be dependent on the income from your investment and will need to spend at least  parts of the dividends that you receive. But do not despair, your income can increase greatly through compounding even if you need to spend it – as long as you have invested in the right companies. The typical dividend stock is a mature company that pays dividends every year from its earnings, sharing a part of their earnings. The ideal company you want to have in a dividend portfolio does also steadily grow its dividend over time. In fact, dividend growth drives the compounding principle for individual stocks. What’s more, rising income that comes from a growing dividend does not only mean that you will receive a greater absolute income over time, but you will also get a rising stock price. The reason is simple: The company producing the income is obviously worth more as the income it produces increases. So what we are ultimately looking for are high-yield stocks that have rising dividends.

An example: In year 1, you decide to buy 10 shares in company A at a price of SEK 100 for a total of SEK 1,000. Company A pays a dividend of SEK 10 in year 1, that means your dividend yield is 10%. In year 2, company A increases its dividend by 10% to SEK 11. Remember, you bought the share at SEK 100, so the yield on your initial investment has grown from 10% in year 1 to 11% in year 2. By year 10, company A will pay a dividend of SEK 23.6 , given it sustains a 10% yearly growth. The yield on your initial investment has now gone up to almost 24%.

The Nordic Investor dividend portfolio

We have identified nine companies that we believe make up an appealing combination of current yield, yield growth potential and quality operations. We are also aiming for a broad sector diversification to spread the risk. Furthermore, we are adjusting the portfolio allocation according to size, history (track-record), nature of business and industries. At the time of writing, the proposed portfolio offers a dividend yield of 5%. The proposed composition looks as follows:

Betsson (SEK 137, expected yield: 3.5%)

UnknownOperations: Betsson is an online gaming operator which offers internet gambling including casino, poker, sports betting, and other games. Casino and sports betting are the largest areas and the Nordics is the largest region. Betsson also has a B2B platform offering, active in Turkey, the UK and China. Betsson has an active M&A history with acquisitions such as Betsafe, NordicBet, O&K and Europe-bet. In 2015, the company is expected to report revenues of SEK 3.7bn.

Dividend policy: Under the Company’s dividend policy, 75 per cent of earnings may be transferred to the shareholders, provided that a suitable capital structure can be maintained.

Balance sheet: At the end of Q3 2015, Betsson had a net debt position of SEK -112m (i.e. net cash) and a net debt/EBITDA of -0.1x.

Hennes & Mauritz (SEK 277, expected yield: 3.6%)

images-3Operations: H&M engages in the sale of clothing, accessories, footwear, cosmetics and home textiles. Its products include accessories, underwear, cosmetics, sportswear, and other apparel for men, women and kids. Its brands include COS, Weekday, Cheap Monday, Monki and H&M Home. The company has around 4000 stores in 55 countries around the world. It has an outspoken expansion strategy and targets store growth of 10-15% per annum. In 2015, the company is expected to report revenues of SEK 182bn.

Dividend policy: The Board of Directors has determined that the dividend should equal around half of the profit after taxes. In addition, the Board may propose the distribution of any surplus liquidity.

Balance sheet: At the end of Q3 2015, H&M had a net debt position of SEK -11, 948m (i.e. net cash) and a net debt/EBITDA of -0.4x.

Skanska (SEK 155, expected yield: 4.6%)

images-3Operations: Skanska has four main business streams: Construction, Commercial Project Development, Residential Project Development and Infrastructure Development. It is the third or fourth largest construction company in the world and its operations cover the entire value chain – everything from small building services contracts to assuming total responsibility for identifying and solving customers’ long-term needs for construction-related services. Its project development operations comprise the initiation of work premises, homes and infrastructure facilities. Skanska’s primary markets are the Nordic area, the US, the UK, Poland, the Czech Republic and South America. In 2015, the company is expected to report revenues of SEK 157.5bn.

Dividend policy: Pay out 40-70% of profit for the year, provided that the overall financial situation is stable and satisfactory

Balance sheet: By the end of 2015, Skanska is expected to have a net debt position of SEK -3.7bn (i.e. net cash) and a net debt/EBITDA of -0.6x.

HiQ (SEK 48.7, expected yield: 5.8%)

images-4Operations: HiQ is a high-end technology services company with a niche focus on communications, systems development and simulation. It has three main areas of competence: the development of embedded systems, the development of client/server solutions and management consulting. HiQ’s most important clients are in the telecom value chain. The company employs some 1,300 people in Sweden, Finland and Russia. HiQ is the premium IT services vendor in the Nordic region based on competence and operational performance. In 2015, the company is expected to report revenues of SEK 1.5bn.

Dividend policy: The goal is for the long-term dividend level to be approximately 50% of HiQ’s profit after tax.

Balance sheet: At the end of Q3 2015, HiQ had a net debt position of SEK -185m (i.e. net cash) and a net debt/EBITDA of -1x.

Dedicare (SEK 37, expected yield: 6.8%)

images-5Operations: Dedicare is a leading healthcare staffing company, with a focus on temporary staffing and recruitment of doctors, nurses and other healthcare professionals to public and private healthcare providers. With its Nordic focus, Dedicare operates in a region with penetration ratios below normalised levels, implying structural growth. The healthcare staffing segment in which Dedicare operates has a lower growth rate than the overall staffing industry, but this is offset by Dedicare experiencing a softer landing during recessions.

Dividend policy: The goal is to pay out at least 50% of the net profit over a business cycle.

Balance sheet: At the end of Q3 2015, Dedicare had a net cash position of SEK 68m.

Björn Borg (SEK 29, expected yield: 5.2%)

images-4Operations: The Björn Borg Group owns and develops the Björn Borg brand. The focus of the business is on underwear and sports apparel as well as the licensing of footwear, bags and eyewear. Björn Borg products are sold in around 30 markets, of which Sweden and the Netherlands are the largest.The Björn Borg Group has operations at every level from branding to consumer sales in its own Björn Borg stores and e-commerce. Operations comprise brand development and services for the network of licensees and distributors as well as product development in the core underwear and sports apparel businesses. The Group is also responsible for distribution of underwear and sports apparel in Sweden, England and Finland, as well as footwear in Sweden, Finland and the Baltic countries. In 2015, the company is expected to report revenues of SEK 572m.

Dividend policy: According to Björn Borg’s financial objectives for the period 2015–2019, at least 50 percent of net profit will be distributed annually to the company’s shareholders.

Balance sheet: At the end of Q3 2015, Björn Borg had a net debt position of SEK -35m (i.e. net cash) and a net debt/EBITDA of -0.6x.

Nobina (SEK 36.5, expected yield: 6.6%)

images-2Operations: Nobina is the Nordic region’s largest public transport service provider.Nobina ensures that more than one million people get to work, school or other activities by delivering contracted public transport in Sweden, Norway, Finland and Denmark. In addition, Nobina offers express bus services under the Swebus brand in the Swedish market. In 2005, Nobina’s share of the total paid working hours that its drivers spent with passengers was 66 percent. In 2014 that figure had risen to 72 percent. Simultaneously, the passenger and customer satisfaction surveys that Nobina carried out revealed continual improvements. In 2015, the company is expected to report revenues of around SEK 8.3bn.

Dividend policy: The company expects to distribute annual dividends in excess of 75% of adjusted EBT.

Balance sheet: At the end of Q3 2015, Nobina had a net debt position of SEK 3.9bn and a net debt/EBITDA of 4.69x.

Unlimited Travel Group (SEK 21, expected yield: 5.7%)

logo-2Operations: Unlimited Travel Group owns, develops and acquires small- and medium-sized travel companies that specialize in two segments: the group, conference and business travel segment, and the private travel segment. Founded in 2002, its investment portfolio comprises JB Travel, which specializes in group, conference and business travels; Eventyr, involved in organization of travels and events; Ski Unlimited, involved in the organization of group travels in the Alps and the Swedish mountains; Birdie Golf Tours, providing golf travels and schools; Västindienspecialisten, offering travel packages to the Caribbean; Travel Beyond, a travel event organizer; WI-Resor, which organizes wandering trips; Världens Resor, focused on travels to Asia and South America; PolarQuest, which specializes in trips to the Arctic and Antarctica; Good Travel, which organizes trips that combine volunteering with travel; and a tour operator, Specialresor Birgitta Johnson Aktiebolag. In 2015, Unlimited Travel Group is expected to report revenues of SEK

Dividend policy: UTG’s policy is to distribute 40-60% of the adjusted profit per share to its shareholders.

Balance sheet: At the end of Q3 2015, UTG had a net cash position of SEK 57m.

Opus (SEK 5.40, expected yield: 1.9%)

logoOperations: Opus Group was founded in 1990 and is today one of the leading vehicle inspection players worldwide. In the US, the company is market leader with some 44% of the market while in Sweden the company is number 2 with around 28%. The company has grown its sales by an impressing 46% CAGR the last five years and sales reached almost SEK 1.5bn in 2014 with strong cash operating cash flows and good profitability. Following the divestment of its Equipment business during 2015, operations are divided into two divisions: Vehicle inspection international (ca. 67% of sales) and vehicle inspection Sweden (ca 33% of sales). The company conducts more than 25 million vehicle inspections per year and it is committed to continue to grow. With eight successful acquisitions since 2008, management’s track record of integrating new businesses is impressive. In 2015, the company is expected to report revenues of SEK 1,662m.

Dividend policy: Opus’ policy is to distribute 10-20% of profit at the EBITDA level.

Balance sheet: At the end of Q3 2015, Opus had a net debt position of SEK 690m and a net debt/adjusted EBITDA of 2.4x.


Here is a summary of the nine candidates we propose for a Swedish dividend portfolio, as well as their dividend payments since 2010 (where applicable), as well as consensus estimates for 2015-2017 dividend payments:


Given the different size, history, businesses and industries of the companies we do suggest to not weigh all of the positions the same. In the table below, you can see how we would distribute a hypothetical portfolio worth SEK 1 million. In total our proposed portfolio is expected to generate a yield of 4.9%:


Nordic Investor

Disclaimer: Nordic Investor owns shares in the companies mentioned in the report. The information provided in this article is our own interpretation and analysis. No guarantee for the correctness can be given. The article should not be seen as investment advise. Always consult a professional before making investment decisions.available, all estimates are collected from, otherwise estimates are our own.

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