Do you know one of the many reasons I know I found my soul mate 12+ years ago? For our upcoming wedding anniversary, we bought each other shares of Total, SA, the French oil giant. I’m not even kidding. The shares have been added to the KGEP.
The thought process was, “Why give a gift that will be forgotten in the future, when I can give a gift that keeps paying dividends you can enjoy for the rest of your life?” That means based on a rough estimate of typical life expectancy, instead of getting 1 gift now, we will each receive 200 gifts in the future (4 dividends per year x an estimated 50 years) that we can use for nice dinners, cashmere sweaters, travel, furniture, video games, watches, charitable donations, bottles of Creed, nice cookware, new televisions, tickets to movies, the theater, sporting events, or concerts, or whatever else we want at the time. Plus, when we fall off the mortal coil, we then get to leave the children and grandchildren money to help pay for school, start a family, buy a house, or enjoy themselves.
It’s the gift that keeps on giving. For the rest of our lives, we’ll keep benefiting from this particular anniversary, always remembering it.
Why Total, SA? We already own a bunch of Royal Dutch Shell and BP. The $49.22 stock pays a dividend of approximately $3.08 per year, for a dividend yield of 6.26%, but many financial sites report it net of a 30% French withholding tax, dropping it to $2.16. This makes the yield look like it is 4.50%. (The dividend amount can be slightly hard to pin down because the Total SA dividends are declared and paid in Euros, which then get converted to U.S. dollars by the sponsoring investment bank of the ADR; obviously the exchange rate fluctuates from quarter-to-quarter.)
However, if you fill out form 5000-EN, have it certified by your home tax office and brokerage firm, and ship it to the French government, you can take advantage of the lower 15% withholding rate that is applied to investors in the United States as long the ADR are held in regular taxable brokerage accounts. That brings the net dividend to $2.618 per share, for a 5.32% yield. Again, that’s after tax.
This means for someone who is willing to fill out a little bit of paperwork, you can collect a 6.26% pre-tax yield, which for taxable accounts is what you should be using as a comparison to other energy firms, which works out to a 5.32% after-tax yield. You collect this cash while owning one of the largest oil companies on the planet, trading at 7.53 times next year’s earnings.
I’m still worried, a bit, about the corporate environment in France. The court system struck down the 75% millionaire’s tax as inequitable, but there seems to still be a desire to drive all business out of the nation as the elected officials quickly sought to fix the problems with the first law and re-implement a confiscatory tax regime. I’m having faith at the moment they will fix it, with the margin of safety in the security as part of a diversified portfolio acting as a buffer against being wrong (once the dividends are paid, they can’t take the money back, so the risk is reduced relative to initial capital outlay every quarter). If I’m right, the future upside should be considerable years down the line.
I’m a simple man who finds joy in a lot of things. This is how we both feel at the moment:
Whether you realize it or not, you are pumping money into Total’s coffers and now shipping us dividends. Just look at Total SA Statistics – 2012-2013 Edition. It’s crazy. Use diapers for your baby? There’s a good chance it made one of the adhesives that hold the plastic tabs on the material. Travel by airplane? The insulation and fire retardants were probably made by Total. Plastic pipes? Yep, Total sold 27,000 tons of polyethylene to China last year. Not to mention all of those folks in Europe filling up their cars with petrol.