Sustainable Dividends


april 2020

Looking back and ahead

A sharper contrast with the tone of the previous quarterly newsletter is hardly possible. Three months ago, we ended the year 2019 with the promise that the biggest political hurdles had been taken. There was an agreement on the Brexit and we saw the first signs of the US and China getting closer together again. But then the corona bomb exploded, first in China, and after that in the rest of the world:

‘‘In my 44 years in finance, I have never experienced anything like this. The outbreak has impacted financial markets with a swiftness and ferocity normally seen only in a classic financial crisis. When we exit this crisis, the world will be different. Investors’ psychology will change. Business will change. Consumption will change.’ (Larry Fink, CEO of BlackRock, in his letter to shareholders).

The collapse of the global economy due to the rapid spreading of the corona virus took policy makers, consumers and producers by surprise. In matter of just a few days the sentiment on financial markets had reversed completely. Countries like China, Italy, Spain and parts of the US are in a lock down. At the moment of writing this newsletter globally over 2.7 million people have been infected and more than 190.000 lives have been lost. Sales in the services sector has dropped dramatically as travel and tourism has stopped, and hotels and restaurants have been closed. The airline industry is severely hit and will not survive without government help. Retail, apart from supermarkets, is also under threat.

Estimating the economic damage

We will not see any economic growth in the second or third quarter this year. The IMF, OECD and European Union all made their own estimates about the length and impact of the economic recession that we are in. The damage will first of all depend on the pace in which we will be able to fight the virus. Size and timing of the economic stimulus plans of governments are equally important. In Europe, the economies of Italy and Spain seem to be the worst hit by the crisis. However, France, Germany and the UK will also see their economies shrink significantly this year. Outside Europe the US is a huge worry. After initially showing quite some complacency, President Trump is now very much aware of the devastating consequences of the pandemic. Especially the poor groups of the American population are vulnerable for the virus. Their condition is often weak, and they have to continue to work in order to keep an income. They also loose their health insurance when they get fired, which already happened to some 26 million American workers.

Monetary financing as the solution

The American congress voted in favour of an economic stimulus plan of 2 trillion dollar, something which has never been seen before. In Europe, the eurozone countries are fighting about the way the EU and ECB could offer financial help most effectively. Germany and the Netherlands are against plans of France and Italy to issue Eurobonds as a solution to the financial problems in especially the South of Europe. Meanwhile economist like Buiter and Kapoor are arguing for monetary financing in general. Central Banks should provide governments with some 20% to 30% of the Gross Domestic Product in new money. The money should be used to kick start the local economies, while part of it should be given to emerging markets. If a country would embrace this proposal, the discussion within the EU would be gone quickly.

Performance of the Sustainable Dividends Value Fund

What happened to the fund in these rough markets? Admittedly, this quarter was also difficult for the investors in our fund. However, the fund declined 17% during the first three months of the year, which was quite a bit less than the 23% drop of the MSCI Europe Index. And in the second quarter we started on a positive note gaining – on the day this newsletter was written – over 8% since the end of March. All in all, the total return of the fund since the start in January 2016 is now 27%. This is significantly higher than the 1% return of the MSCI Europe over the same period. Obviously, sustainable investing does not have to have a negative impact on your return. Our strategy also works in difficult times. Periods with negative returns are difficult for each and every investor. However, long term investors will know that these periods also create opportunities in the years to come. Especially since we have a portfolio of stocks that do not suffer irreversible damage to their assets or business model from the corona crisis. A set back in the share price will be modest and temporary and might even positively impact the return on an investment in the fund.

What did not work in the portfolio?

Even though we do not have any holdings in the worst hit sectors like airliners or hotels, some stocks did fall quite a bit. Within the fund two UK small caps suffered the most. Mears Group is active in providing maintenance to social housing in England. Due to the lock down the company is currently providing only emergency maintenance services. However, due to long term contracts with local governments, the order book has been guaranteed. Nevertheless, the share prices dropped 54%. A bit similar was the situation for RM. This company sells physical and digital equipment to schools in England, India and Australia. The share price fell 51% as chances are that sales will fall significantly from the moment schools have been closed. At the same time, we expect digital equipment and online testing to show an acceleration in the growth. For both companies we are confident regarding the future.

Positive developments

Fortunately we also had some bright spots in our fund. Some investments were hardly impacted. Vopak – our only investment in the energy sector – was down just 2%. The fight between OPEC and Russia, in combination with the collapse in demand for oil and oil products, led to a steep drop in the oil price. As future prices for oil are much higher than current prices, it is interesting for oil traders to not sell immediately but hold on the oil for a couple of months. Meanwhile the oil needs to be stored, for instance in the tanks of Vopak. These tanks are filled completely, which means that the company will see a nice increase in profits this year. Swedish Essity also profits from the crisis. The manufacturer of toilet paper and baby diapers, amongst other, did have a great first quarter as consumers were massively buying the company’s products. Volumes sold have gone up and as there was no reason to give discounts, margins were also higher. As a result of this, the share price was up 1% during the quarter.

What does the Fund look like?

The fund’s assets are invested in companies of which we expect that they will grow profits and dividends in the coming years. We have invested in 21 different companies in seven European countries. By choosing stocks in 15 sectors we have made sure there is enough diversification in the portfolio. We have a clear preference for sectors that generate stable cash flows. Some sectors were on purpose not chosen in the fund. Banks, for example, are suffering from the ever-increasing regulation of the sector and ultra-low interest rates. In general, this is not in their advantage. Pharmaceutical companies are very much depending on the development of new medications. This is hard to predict, making the future cash flows uncertain at best. And most stocks of technology companies seem to be awfully expensive at the moment. As a result, their dividend returns are often extremely low.

medistim: market leader in surgical equipment for heart surgery

As every quarter, we discuss one of the shares in the fund in this newsletter. Today we want to put the Norwegian Medistim in the spotlight. This company is active in the development of equipment for the medical sector, specifically surgical equipment for heart operations. Medistim products are used to adequately monitor the patient during surgery. The company is far ahead of the competition with its products and the equipment is standard equipment for surgeons in Europe and Japan. In the United States, the market share is still “only” 23%, but it is growing rapidly. Medistim is also working hard in the Middle East and Asia. In the coming years there is still a lot of growth possible for the company and it is therefore expected that we will see this reflected in increasing turnover and cash flows.

Growing dividends and a debt-free balance sheet

The annual increase in cash flows means that investors in Medistim have seen strong dividend growth in recent years. The dividend has been increased every year over the past six years. And the average increase in dividend was over 20%. This dividend increase is a clear reflection of the expectations of the Medistim management for the future. The management itself owns more than 22% of the shares of the company. So there is no need to doubt whether they are in line with the shareholders. Management and shareholders have the same interests, and that creates confidence. Another criterion that a company must meet before being included in the fund is a strong balance sheet. Medistim has no debts and therefore perfectly meets the requirement of a strong balance sheet. When we look at sustainability criteria, there is no doubt that Medistim’s activities and products make a positive contribution to society. Quality control during heart operations ensures an on average better result of the operation and thus a better quality of life for the patient.

Risks and Valuation

Geen investment case without looking at the risks. At Medistim we also list what could go wrong. First of all, Medistim is dependent on the approval of the local regulator for the sale of its products. As with all medical products, this permission is necessary before the product can be sold in a particular market. Medistim has this approval for the main markets, and sales in new markets are not expected to encounter problems. Then the company is dependent on hospital budgets. While Medistim is potentially life-saving equipment, a hospital may temporarily prefer to spend its budget on other equipment. Then there are also financial risks such as currency and credit risks. In determining the currency risk, it is especially important to know that revenues are mostly in euros and US dollars, while a significant part of the costs are in Norwegian krone. The credit risk is limited because many hospitals are guaranteed by governments. The Medistim share is not exactly cheap at about 18 times the expected cash flow. Nevertheless, the sharp fall in the share price, in combination with the recent fall in the Norwegian krone, has provided an interesting entry point. The expected dividend yield is more than 1.5%. More information about Medistim can be found in the annual report using the link below:


With on average just 8% annual return over the past 3 years European stocks are very much lagging other regions like for example the US. The significant increase in profits for European companies over the last few years does not show in the share prices yet. If we look at popular valuation metrics like the Price/Earnings-ratio or the Dividend Yield, it appears that European equities have become cheaper over the last few years. Both in absolute terms, as well as compared to American equities. This should make European equities an interesting investment for the next few years. Based on historic returns and the current valuation of the market, in combination with an outlook of modest economic growth, we expect a long-term return of on average 8% per year. For investors looking for income from their wealth, dividend paying stocks can be an interesting alternative for savings accounts, that currently pay zero, or sometimes even negative interest rates.

More information on our fund can be found on However, we encourage you to call (+31 20 244 36 54) or email us on with any questions you might have. The share price development of the Sustainable Dividends Value fund can be found on our website or via Bloomberg (fund code SUSDVDV NA).

Investor Event

A few months ago we organised the Sustainable Dividends Investor Event in the CIRCL-building in Amsterdam. The most circular building in the Netherlands was the perfect location to present our sustainable investment fund. We are proud to mention that representatives of DSM and Tomra were presenting at our event. DSM is the Dutch leader in sustainability with products in food, energy and health care. Tomra is the Norwegian world leader in reverse vending machines and waste sorting machines. The company presented its view on sustainable recycling solutions. Both DSM and Tomra have made excellent returns for the investors in our fund. As a result of the event we have welcomed several new participants. They truly support our goal of investing together for a sustainable society. More and more often we can share our story with interested investors, which means lots of nice conversations. If you happen to know people who might also be interested in our strategy, we would be glad to talk to them as well. Gaining trust by speaking with investors directly is most important for us. We sincerely appreciate your support on this journey to grow the Sustainable Dividends Value Fund. We have only just begun, and a long road full of interesting investment opportunities is ahead of us. Thank you very much for your trust and support. And above all we wish you a good health.