This is the editorial of our monthly Quant Value Investment Newsletter, published on 2023-05-02. Sign up here to get it in your inbox the first Tuesday of every month.
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This month you can read about a broker update and why you must think about claiming back withholding taxes.
But first the portfolio updates.
Portfolio Changes
Europe – Buy Two – Sell One
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a Norway-based shipping company trading at a bargain price of 4.0 times Earnings, Price to Free Cash Flow of 4.4, EV to EBIT of 5.3, EV to Free Cash Flow of 5.8, Price to Book of 1.1 and with a dividend yield of 6.8%.
The second is an Austria-based lighting solutions company trading at Price to Earnings ratio of 5.5, Price to Free Cash Flow of 5.3, EV to EBIT of 5.3, EV to Free Cash Flow of 6.8, Price to Book of 0.8 and pays a dividend of 4.9%.
Stop Loss - Sell
Rottneros AB -28.5%
North America – Buy One
One new recommendation this month as the index is above its 200-day simple moving average.
The company is a Canada-based electronics manufacturing company trading at Price to Earnings ratio of 9.1, 7 times Price to Free Cash Flow, EV to EBIT of 5.1, EV to Free Cash Flow of 9.2, and Price to Book of 0.8.
Asia – Buy Two – Hold One
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a Japan-based apparel company trading at Price to Earnings ratio of 6.3, Price to Free Cash Flow of 7.6, EV to EBIT of 5.2, EV to Free Cash Flow of 8.8, Price to Book of 0.6 and also pays a dividend of 2.6%.
The second is a Japan-based company engaged in warehouse business and port transportation services trading at Price to Earnings ratio of 5.7, Price to Free Cash Flow of 3.0, EV to EBIT of 5.3, EV to Free Cash Flow of 4.7, Price to Book of 1.1 and with a dividend yield of 3.2%.
Continue to hold Southern Cross Electrical Engineering Limited (+3.8%), recommended in May 2022, as it still meets this portfolio’s selection criteria.
Crash Portfolio – Buy One
One Crash Portfolio recommendation this month.
It is a France-based designer and manufacturer of interactive entertainment hardware and accessories trading at Price to Earnings ratio of 5.0, Price to Free Cash Flow of 3.4, EV to EBIT of 2.4, EV to Free Cash Flow of 2.7, Price to Book of 1.0 and it pays a dividend of 3.7%.
Brokers feedback
Jim gave great feedback on Interactive Brokers (IB) (one of the brokers mentioned in last month’s newsletter)
I want to remind you that IB charges a commission of only 2 USD for a currency conversion. Doesn't matter if you convert $2000 or $20,000 or $200,000—the commission is still US$ 2.00. Rates are the same rates as for forex trading, i.e., very close to mid-market.
You can attach a forex conversion order to a trade, and IB will convert very close to the exact amount needed to place the trade (whether BUY or SELL). This is not available for retirement accounts.
However, dividends will be paid in the "local" currency (the currency the stock trades in) and will accumulate in a sub-account for that currency until you use the funds to buy another stock that trades in that currency or convert the funds to your base currency.
You can place a trade with their "Smart" system that buys the stock on the exchange with the best price. My trades often close at a price better than my limit.
Takes a while to get help from them, whether by phone or opening a ticket. Some reps know a lot, some do not.
Learning curve is extremely high, but I'm glad I finally did it. They do have videos that show how to do a lot of things, but there are so many, it takes a while to find the one you need.
Thanks Jim, I am seriously thinking of opening an IB account.
Don’t forget about withholding tax!
A Canadian oil and gas company I own recently sold off a large part of its business and declared a special dividend.
As the special dividend was about 64% of the current share price, I wanted to make sure that I could claim back at least a part of the 25% of Canadian withholding tax on dividends.
To my surprise I found out that Saxo Bank does not offer a service to claim back withholding taxes!
Important to keep in mind when selecting a broker
This is important if you use a high dividend yield strategy or just have companies in your portfolio, like I have with the tobacco companies, that pay high dividends.
As a side note. I'm not a big fan of a high dividend yield strategy, mainly because of the withholding taxes and the dividend income taxes. In Germany that can be up to 48% of the dividend received! These strategies all assume the full dividend is reinvested which is not possible. Thus, a bad strategy.
On average the ideas in the newsletter pay dividends of 4.1% which is not all that high, but you can imagine if you lose even 25% of the dividend it substantially lowers your returns. Especially if you consider that you follow the strategy for long periods of time, 10 years or more.
Make sure you can claim withholding taxes back
So, when you look for a broker make sure you find one that can claim back your withholding taxes. My two brokers here in Germany claims it back for me automatically for amounts greater than €30.
It's not a huge amount of money but it is something that lowers my training costs, and it adds up over time.
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