Three Characteristics We Look for When Recommending a Dividend Company

Today we will present three fundamental characteristics that we look for in the companies recommended by our portfolios, especially the dividend portfolio, which has as a focus, besides the operational excellence of the companies and good numbers, a good dividend history for those who seek to increase the generation of passive income, with consistency. Obviously there are several other features that we also look for, and no doubt we want to address other opportunities, such as Suno Call or even weekly reports, but today, we will focus on three characteristics that we consider very important and usually require before recommending a company. Enterprises in less cyclical sectors Whoever accompanies our portfolios can realize that, in general, we do not usually add to the portfolio assets of companies exposed to cyclical sectors. The biggest reason we do not add this company profile is precisely because companies in cyclical sectors show great volatility in their results, or even in their cash generation, which poses a risk to those who are looking for consistent dividends. A legitimate business case of a cyclical segment paying high dividends at the "top" of this cycle is Vale (VALE5) a few years ago. The commodities segment, where Vale operates through mining, is a highly volatile segment, and iron ore, the main mineral that Vale works, also suffers many variations in its prices over time, due to a natural cyclicity of the global economy, with periods of imbalance of supply and demand, etc. Due to a strong acceleration in the Chinese economy verified over the last decade, with a strong demand for the mineral, iron ore reached record levels of price, being negotiated to values ​​close to US $ 200.00 between 2010 and 2011. We can see, however, that for nearly 20 years prior to the so-called "commodity boom," prices were much lower, and the ore traded for just over $ 10.00 on average. Many unsuspecting investors believed that the ore near $ 200 had come to "stay," but the more prudent, who knew of the high cyclicality of the sector, saw things differently. With the ore in the "heights", Vale presented record results, with very high profits, and consequently made very expressive payments, which led many investors to buy shares of the company seeking profits. We can see below how in 2011 the company reached record levels of dividend payments. However, in the following years with the fall in the price of commodities, especially iron ore, the company saw its dividends reduced significantly and paid its shareholders less than R $ 0.20 per share. To summarize: Those who bought in 2010 or 2011, where the company made large dividend payments on record profits, and expected to receive those high dividends in the future, saw its planning be interrupted by a serious blow to reality. Today the ore has been recovering, but still negotiates well below those levels seen a few years ago. Obviously, as Vale increases its productivity, reduces its production costs, and improves its efficiency, it is expected that the company will present more attractive margins, even with a much cheaper ore, but still, hardly the company, at least in the short or medium term, you will pay back the dividends you have paid in the past. Therefore, investors should always evaluate the sector where the company is inserted and analyze the whole context, the "whole of the work", precisely so as not to be surprised negatively in the future. Companies that trade commodities in general are companies that investors should be very careful investing, precisely because during the period of high cycle their profits end up evolving significantly and the market often ends up pricing those profits , which at some point will be greatly reduced. Moreover, when the cycle ends, the actions of these companies tend to suffer very strong falls, damaging and much the return of the investor. We can see below clearly how the investor who bought shares of Vale when the ore was close to the peak of prices, and the company had a high dy on account of this (> 6%), was quite prejudiced in terms of return, even with the strong valuations that Vale's shares have suffered in recent semesters. Cyclical companies, in our view, must be bought in the "bottom of the cycle", that is, when they are totally devalued, paying relatively low dividends (or paying dividends), with an attractive valuation, because at the moment the cycle is reversed , the investor gains very expressive gains. We intend to recommend future Vale