Dividend Investing 2023: From Smith & Wesson to Bayer

Dividends 2023: The Year Bayer Tested Investors

The year began with a firearms company down -43% yet still distributing a net 2.16% in dividends, and HP appreciating 6.36% while paying 3.4%. A dividend income portfolio is a list of hits and misses that continue to generate cash. In 2023, the party started slowly and ended with an in-house awards ceremony, several sales, and an uncomfortable question: when is a company truly cheap?

The Real Goal of a Dividend Portfolio

The promise is simple: the companies you invest in pay you healthy cash directly into your hand. The challenge is patience. A first-year dividend won't beat inflation by a long shot; what does is a company that increases its payout year after year. Ambev is a recurring example: €0.09 gross per share one year, €0.14 the next. And the classic case: Warren Buffett bought Coca-Cola over thirty years ago and today collects in dividends 50% of what he paid for it.

This is where two worlds diverge. Dividend-paying companies distribute a portion of their profits, leaving shareholders to decide what to do with it; accumulator companies reinvest everything. The criticism of the latter is that they force investors to sell shares at the wrong time to cover daily expenses. The criticism of the former is that if they cut the payout, the stock market punishment is immediate. I want to live off my dividends, not worry about the best time to sell, argues one of the most common viewpoints.

Smith & Wesson: How to Go Broke While Collecting Dividends

The firearms company is a textbook case of everything that can go wrong. Buying it was an opportunistic bet —just over 1% of the portfolio— based on the idea that in times of crisis, gun sales rise, and due to trade friction with Europe. The thesis went out the window: the stock lost 43% from the purchase price. And here's the detail almost no one calculates: when the stock falls, the net dividend shrinks. On paper, it pays a gross 3.47%, but measured against the price paid, the actual return is an annualized 2.16%.

The calculation is straightforward. If you buy a stock for €1,000 that pays a 10% dividend and the stock plummets, your percentage return on the purchase price drops even if the euro amount remains the same. The conclusion of the discussion is that the stock price is an entry indicator, not a judge of a company's quality. Regulatory risk —potential restrictions on gun ownership in the United States, the company's largest market— loomed over the entire debate and divided opinions: some saw opportunity in the slump, others the classic falling knife.

The Bayer Case: How to Read a €96 Billion Debt

Bayer became the year's major battleground. The pharmaceutical company carries a debt of €96 billion against about €12 billion in operating cash flow, which at first glance would suggest nearly a decade just to pay it off. A more detailed analysis clarifies: much of this liability was issued long-term in 2016, when interest rates were negligible, and of the total, only about €22 billion matures in the short term. In 2023, with high interest rates, the structure holds up better than the headline debt figure suggests.

The other front is Monsanto. The acquisition led to a cascade of lawsuits over the herbicide Roundup; there are talks of over 100,000 open litigations and €16 billion provisioned. For the most pessimistic scenario, losing that amount spread over five years would be manageable if it didn't coincide with everything else. The valuation suggests that below €50, the radar activates, and the reasonable buying zone is between €30 and €40. Some warn that, with the lawsuits, the company could go bankrupt if it starts losing cases of that magnitude.

Tobacco Companies, Telcos, and Regulatory Risk

Tobacco companies were a safe haven. Japan Tobacco reached a +52% appreciation and paid generously, with a simple argument: Japan is a nation of smokers. The recurring question throughout the year was why British American Tobacco trades so cheaply compared to Philip Morris; the most accepted answer points to the latter controlling around 50% of the vaping market.

In telecommunications, the most interesting episode involved AT&T. The operator plunged, offering a gross dividend above 8%, and then rebounded over 7% in a single day after news about its cables. Those who bought at the low point gained nearly 10% in two days. The other major transaction in the sector didn't originate here: the Saudi group STC bought a 9.9% stake in Telefónica for €2.1 billion.

Beware of 7% Dividends

One of the most repeated warnings: any company offering 7% or more in dividends should be scrutinized. An abnormally high dividend yield often hides two things: a one-off extraordinary payout or a business in freefall. The cited case was Yara, whose shareholder return was considered unsustainable, even exceeding its earnings per share. The general advice: distrust the snapshot and read the annual report before trusting the figure.

Year-End Awards: Norsk Hydro and China Mobile

The close of the year presented a home-grown medal table that serves as a snapshot of the method. The best percentage dividend went to Norsk Hydro, with a net 9.45% and an accumulated appreciation of +156%. Silver went to China Mobile, with 8.72% net. The Chinese company is a recurring example of buying when the market overlooks an opportunity: it entered the portfolio when the US temporarily delisted it, and it's now up nearly 50%. IBM closed its year with a 5.82% net on a position that had appreciated over 80%.

The Crisis Expected Around 2027

Not the whole year was about dividends. A macroeconomic thesis with its own name and date loomed: a sovereign debt bubble that will burst, with eyes set on 2027. The reasoning, broadly explained: almost all money is debt; when it's paid, it disappears, becomes scarce, more expensive, and someone can no longer pay. The crisis wouldn't be an accident but a recurring antiestéticature of the monetary system. The discussion intersected with massive debt sell-offs and the role of the Federal Reserve, which generates as much certainty as slogans.

The year ended without epic events. Several positions in the green, some forced sales for portfolio cleanup, and a list of good companies in bad times —Airbus, Intel, 3M, BASF— that uphold the method. The data that stands out isn't from the winners: it's that most of the best trades were made when everyone else was looking the other way.

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This analysis does not constitute financial advice. Any investment decision carries the risk of capital loss.