BMW shares

7 Reasons to Buy BMW Shares Today!

26th June 2018 - BMW shares @ Eur 78.45

Thanks to the Trump’s Trade War against the world, all the auto car maker shares are dropping significantly for the last couple of weeks. Three Key Reasons for the 15% drop in shares from recent 6 months high:-

  1. Trump’s 25% Tariffs potentially slowing sales in US.
  2. Daimler (Mercedes) recent reports on slow down growth
  3. Electric Cars grabbing market shares from diminishing diesel cars 

Daimler and VW may be in trouble-waters, but I am not worried about BMW’s future. Simply because of these 7 key reasons.

1. Simply a Great Company.

When a person buys a BMW car, they progressively plan for their next BMW car in the distant future. Besides customer loyalty, BMW simply produces amazing, well-engineered cars with an excellent engine. As a financial investor, BMW tick all the boxes for fundamentals of a great long-term growth and dividend share.

BMW does not just plan for their next model line of cars, but also innovating the future of the car industry setting standards for others to follow. They are market leaders in the diesel engine efficiency and still clear from the German diesel engine scandal a few years ago. A company with a great economic moat and disciplined business model.

Do you know BMW also own MINI and Rolls Royce?

2. Backed by the German government.

BMW drives the German economy and will always be backed and favoured by their local government. If BMW ever gets into financial difficulty the government will always be around to rope them out.

The only way BMW will go under is when they stop innovating. Driving technological innovation will always be in the blood of the company principles. BMW always comes up with realistic future concept cars and executes their plans accordingly.

3. Good Value under £79.

According to FT.com, at under  EURO79 per share, BMW's price to earnings ratio is at 5.91. This means the price of the shares is only trading just over six times of the companies earnings which makes it extremely cheap.

Apple trades at 20X, Netflix is trading at 300X, Shell is trading 15X, Disney is trading at 15X, Nvidia is trading at 40X, GSK is trading at 35X.

In comparison, BMW is really undervalued compared to other industrial stocks.

Comparing with other car manufacturers: Daimler is trading at 5.9X, GM is trading at 9X, Ford is 6.21X, VW is trading at 6.51.

In comparison, BMW is still lower than its other car manufacturer rivals

4. Electric Vehicle and Self Driving Vehicle not priced yet

The current trading share price has not included for the future value of the electric and self-driving future potential. BMW is already preparing for their 2021 electric mainstream models superseding the current prime diesel models. BMW I4 have claims to travel range of greater than 400miles which Tesla is still struggling with.

Currently, BMW is way behind on mass production of electric vehicles. However, the BMW I3 models are their current test-sheep cars collecting data for their electric engineering team back in HQ. BMW is still keeping quiet on their self-driving technology and selection process.i

5. BMW pays £4 dividend per share in 2017.

£4 dividend per share at under EURO79 is equivalent to 5% interest per year.

The dividends are still rising at a 10% rate every year.

So you buy 50 shares at EURO79. In 12 years time, assuming the dividends increases 10% every year, you could potentially earn EURO12.50 per share.

50 shares X EURO12.50 = EURO625.00 per year in dividends

Yearly Yield = (50 X EURO79)/ EURO625 = 15.8% yearly yield in 12 years time!

6. Slowdown Growth? Its not a Race, its a Marathon.

Trump's trade wars where tariff of 20-30% is imposed on EU imported cars. Please bear in mind that BMW has a factory in the US which mass produce 1500 vehicles a day for mainly the X series spec for the US roads. The lower cost of overseas factories has lower margins which would keep up with the Trump's tariff.

With the hybrid Mini's released, it would be just a matter of time before BMW starts mass producing full electric for all Mini and luxury BMW models. Rolls Royce has also pledged to go full electric by 2040

7. Luxury Icon.

Luxury goods are simply over-priced goods paid by customers recognising status and quality. These production companies normally mark-up the price to ensure the exclusive products are only be attained by certain classes in the community. Hence the enormous price markup.

British fashion luxury manufacturer Burberry, the shares were slammed hard during the Chinese downturn in 2016. Investors selling off because the Chinese market will no longer drive the growth of the company sales. After 2017, the shares recovered by over 80% after. Quality items do not need to boost volume sales and they could just mark-up prices to make up for the deficit.

BMW is a luxury item, an icon and everyone wants to own the badge. With the emerging countries moving up to middle class, its a matter of time BMW factories starts appearing mass producing quality luxury goods for these consumers. Luxury goods drives customer demands.

Final Words

I am recommending BMW shares for long-term minded investors who are looking for dividend growth shares. Not expecting BMW to sprout like Amazon. I know my son will be dreaming of owning an electric Self-Driving BMW in the next 20 years picking up his girlfriend from work. Its quality companies like this which will be around when I retire. Buying BMW below EURO79 is good value. If it goes lower, then buy as much as you can afford. With such high dividends payout per year, recommended to re-invest the dividends for compounding growth.

From,

Dr Alex Koh
Founder and CEO of MooMooCoo.com
Family Finance Made Simple

Copyright © *2018* *MooMooCoo*, All rights reserved.

Our mailing address is: alexkoh@moomoocoo.com

2 Comments

  1. Hi Alex,
    How are you buying this stock in the UK?
    Do you not have to pay withholding tax on the dividends?
    For me in SG, all dividends paid for any stocks on the German ETR market are charged with a 26.35% with holding tax.
    Similarly 30% with holding tax for dividends from the US market.

    1. Author

      Hi Mr Nagarjum,
      In the UK we have a tax free allowance called the ISA for every tax paying an individual. ISA can be in the form of cash ISA, self-invested pension isa, stocks and shares isa.
      Each individual area allowed to contribute up to £20k for the current tax year. So in April next year I can top up another £20k, My wife is allowed another £20k and kids are allowed about £4k each. All profits/loss and dividends within the stocks and isa account are tax-free. Also, dividends earn outside the ISA is allowed at £2k tax-free.

      Yes, I got the same comment from another reader from South Korea too. All gains are subjected to about 20-25% tax which is alot!

      If you google UK ISA millioniare there are about 1000 ppl for now. All invested for last 25 years and turned their money into more than 7 figures from maximum contribution. Bear in mind that it was only contribution of about £3k a year then. I think overall it was under a £150,000 contribution last 20-25 years to gain up beyond $1m.

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