HENOF - Henkel: Why It's Time To Sell The Preferred Shares

2024-02-14 15:18:58 ET

Summary

• The preferred shares of Henkel AG & Co. KGaA are once again trading at a significant premium to the ordinary shares.
• In this update, I explain why I sold my position in HENOY/HENOF shares and why I believe that the market is - once again - acting irrationally.
• In addition to a critical assessment of the actual dividend security of Henkel stock, I also take a brief look at profitability and balance sheet quality.
• I also provide a brief explanation of the - potentially confusing - four ticker symbols under which Henkel stock is traded in the U.S.: HENKY, HENOY, HELKF and HENOF.

Introduction

It's been quite a while since I last covered Henkel AG & Co. KGaA ( HENKY , HENOY , HELKF , HENOF ), a German blue-chip company which specializes in adhesive technologies and a range of household and personal care products.

In my article published in May 2022 , I pointed to the fact that the preferred shares were trading at the same level as the ordinary shares for the first time in twenty years. I argued that I expect the preferred shares to mean-revert and therefore represent an asymmetric long opportunity that increases the return potential of Henkel stock. Since then, the investment has returned 22.4% - 3.1 percentage points are attributable to the dividend payout of €1.85 per share in 2023, and the remaining 19.3 percentage points are roughly 60/40 attributable to the relative mean reversion of the preferred shares and the underlying performance, respectively....

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