At Dividende Aristokraten Fresenius (WKN: 578560) it just doesn’t work right now. Finally, we see a red sign again on Thursday this week. However, a drop of around 3% is only the tip of the iceberg. In the past month alone, the shares have again lost around 12% of their market value.
It should be known by now that we are far from the record. Also that Medical Care is not in the best operational shape. Recently, as investors, we had to deal with a change of directors and a few other things. Nevertheless, with a share price of EUR 22.50 and a price/earnings ratio of less than 8, the fundamental valuation is definitely very, very cheap.
So what does dividend aristocrat Fresenius weigh? There is one thing that we must be aware of. And maybe should.
Dividend Aristocrat Fresenius: The New Interest Problem
It is the interest rates that affect the Fresenius share at the moment. Dividend Aristocrat loses market value due to two less flattering prospects. On the one hand, interest rate increases mean that borrowed funds are and will become more expensive. Refinancing and further growth should be financially viable under more difficult circumstances.
The market currently seems to be pricing in that interest rates will continue to rise and that this will potentially be problematic for the healthcare group. As investors, we must clearly keep an eye on this development. Nevertheless, there are ways to deal with this. However, the sensitivity on this subject and the minus the day after the interest rate hike in the US show very clearly that this correlation is currently there.
On the other hand, interest rates also weigh on the dividend aristocrat because there are more attractive and safer options. If Fresenius continues to stagnate operationally, the dividend yield will no longer look so attractive. But at the current share price, the value amounts to over 4%. And that with a payout percentage of just around 30%. Here, too, we see a favorable valuation and a margin of safety, which means that at least this potential return on the dividend seems relatively safe.
Reasonable doubt or a unique opportunity?
Whether the dividend aristocrat Fresenius now faces legitimate doubts or a unique opportunity, well, we can debate that. Ultimately, the answer to this question also depends on how high interest rates rise. As well as how long the period of sustained high interest rates will last.
What is relevant to foolish investors is that the risk/return ratio moves slightly more towards risk for each interest rate step. But despite this, the business model is defensive and the valuation is cheap. The future will show the rest. Or the ECB’s decisions should be highly relevant.
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Vincent owns shares in Fresenius. The Motley Fool recommends Fresenius.