Sold Melexis

Say what?!

However I tend to follow a buy-and-hold strategy, I try not to follow Mr. Markets irrational market behavior. Around 2 weeks ago, my shares in Melexis surged pretty high. They had already been going higher the last months, but due to the results they presented, they went pretty damn high. I sold the entire stake.

Why? Melexis is a Belgian based company which manufactures semi-conductors, sensors and smart systems, mostly for the car industry. I do think this business will appreciate over time because of the growing smart components in cars but I wasn’t convinced the share price reflected both current and future prospects.

melexis

Over 1.5 year, I made a profit of around 80% (dividends included) from the position. When I first bought them, they were trading around P/E 18. This seemed acceptable for the growing company. Nowadays they trade around a forward P/E of 30. Fact is, they are extremely vulnerable to the car industry. Remember the Volkswagen scandal, the slowing down Chinese demand and all of that? The stock took hits back then. However Melexis is a profitable company with a good looking future, I didn’t feel comfortable anymore holding the stock any longer at those levels. All analyst reports have one thing in common: way too expecting. They expect everything to go higher, profits, margins, demand, industry… The market is greedy. When sales slow a bit down or bad news comes in, I expect the shares to plunge.

Because I still like the company itself, I’m waiting for a correction in share price before I would initiate a position again. The sale added €4,500 to my cash reserves, which are around €15,000 right now. I’ll just sit on my cash or do short-term option writing.

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Big tax hint!

Since Trump became President, markets have gone up in general. It’s been hard to identify fairly or undervalued dividend stock to add to my portfolio.

Nonetheless, I made 2 buys in 2017.

My first buy was 60 shares of Novo Nordisk, the insulin-maker. They had taken a hit after their lowered forecasts for the coming years (but still pretty good in my opinion). This cost me €1,990 and should add at least €30 to my annual dividend income.

Novo Nordisk Headquarter in blue, HQ, Bagsvaerd, Denmark, Smørmosevej, Novo Alle, Logo, apis

Next, I decided to buy 200 turbo’s of Veolia Environment company (200 Veolia Environment BNP turbo long 7.1) for a total of €1,744. The company operates mainly in water & waste management and a small part in energy. This is the first time I bought into turbo’s. I used a low-finance level to keep debt costs under control. I did this for 2 main reasons.

First of all, shares were trading at 52-week lows and at P/E of only 14. The company has been going through changes and has been working hard at reducing debt. They are at an acceptable debt level and have good future prospects in my opinion. They pay a fat dividend while the payout ratio is around 75%.

Second, and most important, tax reasons. !Important for Belgian investors! As the Belgian government likes to steal 30% of our precious dividend, I tried to outsmart them. Few people know this, but turbo’s are very interesting tax-wise. Why?

It’s all about the structure of a turbo. When you buy a turbo (or speeder, sprinter, whatever), you don’t actually own the stock. The bank that helps funding you to buy the stock, owns the stock. At first sight this isn’t appealing, yet it is. For this reason, dividend payments are made on the account of the bank. Banks receive a privileged treatment of the government. They don’t pay as much taxes on dividends as we do. Afterwards, the bank subtracts the received dividend from the finance level, thus raising the value of your turbo by the dividend. This is particularly attractive for stocks on the AEX, CAC40 or DAX because Belgians need to pay double taxes.

Concerning the Veolia stock, which is traded on the French CAC, I should normally pay 30% to the French government and 30% to the Belgian government. This leaves me with only 49% of the dividend. Sad reality.

Due to my choice for turbo’s, I will receive at least 85% of the dividend. The general rule goes as follows: if the bank has it’s HQ in a particular country; it doesn’t pay any taxes on the dividend. If it is not, there might exist a special treatment for it. For instance, only paying 15%. In my case it is unclear. I bought it on the Amsterdam Stock Exchange from BNP Paribas, however BNP Paribas is basically French, I think I will end up losing 15% because of the Amsterdam thing. Nonetheless this is 36% better than the original arrangement. If Belgians want a 100% dividend, they can opt for Unilever shares (NL based) on the Amsterdam exchange from example ING (NL based too), this way you don’t pay any taxes on your dividends.

I understand the concern about turbo’s, if it drops too much, you’re forced selling. However, I picked a low-finance level. Initial share price was €15,21 and my stop-loss is at €7,10. If it would hit that level, I guess I would be fucked eitherway. Risk/reward an excellent choice.

What about the debt costs, I hear you asking? The current intrest rate of debt on turbo’s issued by BNP Paribas stands around 2%. Knowing that I borrowed €1,318, this will cost me €26,36 after 1 year. Assuming worst case I get 85% of the dividend, I receive €0,80 dividend x 0,85  x 200 turbo’s = €136,00. Ok I won’t see it on my bank account, but the share of the bank in my turbo will decrease which appreciates my valuation by the same amount.

Without the turbo mechanism, I would have been able to buy around 115 shares. €0,80 x 0,49 x 115 shares = €45,08

This makes a difference of €90,92 on the same invested capital! It looks more like capitalization than dividend distribution to me. Doesn’t matter, as long as I get it.

Barack Obamazz3xmu6