Among European businesses, had been paying out increasing dividends for at least twenty-five years, German health care company Fresenius really stands out in terms of underperforming the market since March 2017.
Investors that invested after the burst of the “Dot-com bubble” in 2002 have seen their Fresenius stocks climb from around EUR 3 to EUR 75 by March 2017. These are massive returns, a stock increasing 25 fold in 15 years compares favorably with having taken a stake in Amazon in that same time period. Holding such positions acquired at a very attractive price through thick and thin has been paying out handsomely for the patient, optimistic investors.
Now, unlike Amazon’s, shares of Fresenius have been in a downward trend since 2017 which is interesting, given the huge economic moat and defensive nature of that company.
Fresenius runs medical centers and other health care facilities, it provides products and services for dialysis in hospitals, etc. There are demographic developments that clearly favor the business models of companies like Fresenius.
Trading 50 % below its all-time high and not having participated in the recovery of 2020 after the “COVID-19 Pandemic Lows”, it’s very clear, that Fresenius has lost a lot of investor trust.
So, why is that?
Fresenius has been on a very poorly prepared, terribly managed and disastrously communicated acquisition spree for some years now. I mean, it’s not that bad as the acquisition of Monsanto by Bayer which will be a drag to that company for many years.
But still, you can see in the balance sheet of Fresenius that this company has taken on significant leverage and goodwill has been ballooning. Growth through acquisitions can be tricky and it is more than clear that Fresenius has overpaid for several acquisition targets.
On the other hand, besides poor management decisions in the past, there is a great position of Fresenius, a huge economic moat, and a very reasonable payout ratio below 50 % which currently sports an attractive yield of almost 2.5 %. We are talking about a dividend aristocrat, this company has hiked its payout for more than twenty-five years.
Fresenius is a company that belongs on the watchlist of investors that want to take some exposure to European dividend stocks that have the potential to increase their payouts further.
Now, I am not saying that Fresenius is a buy now. I want to see the company on its path to recovery, I want to see sustainable organic growth again on the company’s top-and-bottom line. No one wants to catch a falling knife, the stock price dynamic should start to show a bottom, which is currently not (yet) the case in my view.
My guess is that the stock price will remain muted for months to come. But it should stabilize. And with the fundamentals showing improvements, a lagging stock price will make the investment case even more attractive.
That’s the beauty of long-term investing. We can sit and watch. And we can pull the trigger when all factors start moving in the direction where we can feel comfortable having a sufficient margin of safety.
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