- Recently, the price increases of the Allianz shares have had a rather negative effect on the dividend yield.
- That is why I was already hoping for smaller setbacks so that I could buy more. The corona shock has opened now a window for further repurchases.
- The dividend yield is back in a range that I find interesting, the operating performance is outstanding, and the business is less susceptible to corona than some investors may fear.
Allianz (OTCPK:ALIZF) is one of the largest holdings in my widely diversified retirement portfolio, accounting for 2.5 percent of all holdings. I usually buy more shares every year. In recent years, prices for my repurchases have tended to become more and more expensive, as the share price has also continued to rise. Recently, the price increases have had a rather negative effect on the dividend yield, which is why I was already hoping for smaller setbacks so that I could buy more cheaply again. The conclusion of my last analysis sums up my sentiment quite well:
The difficult market environment with low-interest rates and the associated decline in profitability of the largest business segments could continue to weigh on the share price in the future. This, of course, limits the further upside potential and opens up space for possible price corrections. Price setbacks can then make the dividend yield more attractive again.
In the wake of the corona shock that shook the markets, the time has come for me to buy more. Even if prices continue to fall, there were nevertheless good reasons to buy, which I would like to explain in more detail below.
One reason for the purchase is certainly that Allianz is performing extremely well, although one would expect more severe operational problems given the difficult market conditions. But this is not the case. 2019 was an extremely successful year. Here are the highlights, short and sweet:
- Revenue increased by 5.9 percent in 2019.
- 2019 operating profit of 11.9 billion euros (upper half of the 2019 target range).
- 2019 net income attributable to shareholders up 6.1 percent to EUR 7.9 billion.
- EPS increased by 8.4 percent to a record EUR 18.90.
- RoE of 13.6 percent.
- The Solvency ratio went up significantly to 212 percent.
The company is thus in the process of achieving its strategic long-term goals. The management of Allianz is correspondingly great. This is mainly thanks to CEO Oliver Bäte, of whom I am a big fan. Oliver Bäte had always a clear vision of how the company will look like in the future. Accordingly, Oliver Bäte launched the actual agenda called "Simplicity wins". The CEO aligns the three-year plan fully on the digital transformation. This transformation is driven by:
- Continuous productivity gains through simplification and harmonization of insurance services;
- Simple and intuitive products;
- Empathic service and frontline empowerment;
- Leveraging of AI; and
- Focusing on a direct platform and digital ventures and partnerships.
(Source: 4Q 2018 results)
Allianz has the ambition that at least of all business should be the number one in terms of customer loyalty in the market. According to the earnings call, the company moved this number over the last few years from about 30 percent to now 46 percent. The company is thus also well-positioned to generate future growth.
Dividend increase slightly higher than expected
The company has also again increased its dividend more than I would have expected. The dividend will be EUR 9.60 per share. The increase is, therefore, 6.7 percent and the seventh increase in a row. The payout ratio is still relatively low at around 50 percent and still within the intended range:
(Source: Dividend history)
The dividend yield also benefits from price losses. The yield is again well above 5 percent, which is in an area that I consider to be sensible for investments in Allianz. For me, dividend yield at this level compensates for the relatively low dividend increases in the mid-single-digit range.
The company announced a new share buy-back program of up to EUR 1.5 billion. Here, too, the latest price falls come in very useful, as they enable the company to buy back its shares more cheaply. The number of outstanding shares will, therefore, decrease even more.
Investors will benefit sustainably from this strategy in the long term, since the dividend will be distributed among fewer shares, thus increasing the return, or the company will have more money left for growth. With a current P/E ratio of 9.3, the company is once again extremely fairly valued. This is another reason why the buyback makes sense. The management has also made it clear that it only wants to use such buyback programs wisely:
As I always said, we only do things that really make sense for us over time. And I don't want to spend any more time on the other things that we have on this page, not even on the share buyback.
The net common yield also shows that now is a good time to buy new shares in Allianz.
These days one cannot write an analysis without also thematizing "Corona". The problem is that in many cases it is not possible to make any serious predictions. However, the Allianz share price has also gone down the drain (which was certainly also due to the investments via ETF's). Accordingly, Allianz has lost a lot in value.
At least from an operational point of view, I consider this amount to be excessive. Allianz does not offer policies that would cover the risk of epidemics. There are even (as far as one can say) positive aspects:
On the asset management, my remark, about the coronavirus that could be helpful for asset management because that's a little bit of a cynical remark, but just a technical consideration. Clearly if you have a sort of tension in the capital markets, you might argue that in this case the interest rates are going to go down.
Also you might see an appreciation of the U.S. dollar so when you combine the two things. There might be a positive on the asset management. I will not anyway over emphasize this as a main driver and that's definitely not a wish. So that's just a consideration because the question was what happens to your asset management in the case of coronavirus. And I will say that asset management will not be necessarily impacted by the coronavirus and potentially might even be a slight positive but don't do too much out of that.
I have bought more Allianz shares. Of course, the share prices could continue to plummet - quite possible. But the prices will also rise again and from a historical and fundamental point of view, the company is currently extremely favorably valued. And I invest in companies when I think the prices are favorable and do not speculate on short-term developments. The dividend yield is back in a range that I find interesting, the operating performance is outstanding, and the business is less susceptible to corona than some investors may fear.
Additional notes for the dividend payout
The company gives some helpful information about tax issues with regard to dividends on its website. According to this, non-German shareholders will be subject to a deduction of tax at source at a rate of 26.375% by the bank paying out the dividend. However, the withholding tax rate may be reduced by an applicable income tax treaty. The difference between the tax withheld, including the solidarity surcharge, and the rate that applies under the double taxation treaty is reimbursed to the shareholder by the Federal Central Tax Office ("Bundeszentralamt für Steuern") upon application. Note that the reimbursement may be subject to further conditions.
Allianz is part of my diversified retirement portfolio. If you enjoyed this article and wish to receive other long-term investment proposals or updates on my latest portfolio research, click "Follow" next to my name at the top of this article, and check "Get email alerts."
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Analyst’s Disclosure: I am/we are long ALIZF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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