Catching up with the bookkeeping on my July 3 sell of AmBev in my dividend income portfolio

09/07/2012 5:05 pm EST


Jim Jubak

Founder and Editor,

When I posted my most recent update of my Dividend Income portfolio on July 3, I promised that I’d make the required changes to the online portfolio within a couple of days.

Promises. Promises.

Here it is early September and I’m just updating the portfolio now. My bad.

For those of you without perfect recall (or who have better things to stuff their brains with than changes in my portfolios) on July 3 I dropped AmBev (ABV), Brazil’s dominant beer company from that portfolio. The price on July 3 was $38.68 a share.

The biggest problem with AmBev as a dividend income investment now is its own success as a stock and as a company.

In the two years from July 2, 2010 to July 3, 2012, the stock was up 104%.

Unfortunately, the dividend hasn’t kept pace. The payout in 2011 it was $1.16 a share, and for the most recent trailing 12 months payouts add up to $1.08 a share. You can imagine what that has done to the yield on AmBev. Morningstar calculates the trailing 12-month yield at 2.04%.

The company’s extreme level of success also creates problems. AmBev so dominates Brazil’s beer market that it’s hard for the company to pick up significant market share. That leaves revenue and profit tied very closely to volumes and the cost of goods sold. In the last couple of quarters volume growth hasn’t been anything to write home about. In the second quarter, for example, organic volume grew by 2.4%. A favorable cost of goods sold in that quarter was offset by a big increase in the selling, general & administration expense as inflation and rising marketing costs took a bite.

This wouldn’t be much of an issue except that AmBev is everybody’s favorite emerging market beer stock and it trades at 23.4 times projected 2012 earnings. That’s not a recipe for a big decline in shares, but the already high valuation does make a tough for me to see rapid share price appreciation from current levels.

And it does leave the stock vulnerable to what is a very uncertain Brazilian economy.

For those reasons—a low dividend yield after a big run up in price and a relatively weak case for share price appreciation—I sold the stock out of my dividend income portfolio on July 3. The stock closed at $37.93 on September 6.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of AmBev as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at

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