3 Reasons I like Muenchener Rueckver AG

 

Muenchener Rueckver AG is one of the 2 European stocks I own in my portfolio. I would love to own more European stocks, but I find it hard to find good stocks on my home continent. The main reason is that the dividend strategy is not in the DNA of most European companies and there is not written as much on European companies as compared to the US counter parts. So it’s much harder to find the right information. Still, I have 2 of them in my portfolio, Unilever (UN) and Muenchener Rueckver AG (MUV2). This post is about the last of the two.

Why I like Muenchener Rueckver AG

I am looking for dividend paying companies that increase the dividend payments each year and that realize some capital appreciation. The companies must be shareholder friendly. Like I said, dividend are a must and I like share buybacks especially when exercised against the correct stock value.

With that, we directly forward to the first and most important reason why I like Munich RE. The company is very focused on shareholders. This translates into a growing dividend stream. Even better, the company didn’t cut any dividends since 1969 which is an amazing feat! The company has an uninterrupted dividend growth since 2012 (they froze the dividends in 2011). Now, the company proposed a new dividend of € 8,60 for 2017 compared to € 8,35 in 2016 which translates to a 4,2% increase. This increase still needs approval from the shareholders in the annual shareholders meeting at the end of april, but I expect € 8,60 a share in May of this year.

The second reason why I like Muenchener Rueckver AG is the share buybacks they initiate. Last week they initiated a new program with a total value of 1 Billion Euro’s which needs to be used up before the shareholder meeting in april of 2018. This represents a buy back of 3,5% of the total outstanding share count.

The last reason is the pay out ratio. With an earnings per  share of € 16,13 and a proposed dividend of € 8,60 the company has a pay out ratio of 53%. Although it’s higher than in previous years it’s still conservative and I like it.

Some things to worry also

The points above establish that the company is very shareholder friendly and that they achieved great results in the past. However, it’s not only about the past, it’s even more about the future. It worries me a bit that I see declining net profits in the last couple of years and the forecast for 2017 is not yet improving. One of the reasons is the low-interest environment wich causes the float of Munich RE to earn less money.

The company is in a transition phase at the moment. They reorganised the health business recently which costed a lot of money. They expect a contribution of 600 million in profits by 2021 from this reorganisation.

The company is also shifting more and more towards digitization to meet changing client and customer demands which should secure customer loyalty for the future.

 

Conclusion

With Munich RE I have a very shareholder friendly European dividend company in my portfolio. The company has some bumps on the way, also because of the global economic situation (see the low-interest rate for example). However, I also believe that on the long term the company will keep performing. Still, I keep monitoring Munich RE. We will see what the future brings.

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