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A profitable investment in the industry
Hindsight is such a powerful thing. I’m sure you have heard how much you could have made if you invested in Bitcoin 10 years ago or Amazon 20 years ago. Sounds great on paper, though arguably quite difficult to see if you were not a user of the product or service. But what if you could have made a 400% return investing in something you knew quite well?
When you stop and think about it, there are a lot of different specialty brands and products we use every day at work. You may be surprised to know how many of these brands trade as publicly listed companies, meaning you can buy shares and invest in them. There is a good chance that you can be a part owner of your favourite brands. There are also a lot of brands that are owned by larger companies that you can buy and sell shares in. One of these companies is called Signify.
Signify, formerly known as Phillips Lighting, is a Dutch multinational lighting corporation. It holds a number of somewhat similar brands and businesses in its portfolio. You may not have heard of Signify before, but those knowledgeable on lighting brands may have heard of some of their companies. Included under the Signify umbrella are brands such as Philips and their spin-off companies including Philips Hue and Phillips Dynalite, Varilite and ColorKinetics, to name a few. They also used to own Strand lighting.
To paraphrase famous American investor Peter Lynch; “Only buy what you understand. Investors should invest in companies that they are familiar with and understand, instead of trying to predict the future direction of the stock market.” With a net worth of about $450 million, it would read as sound advice. For example, most individual investors (ie: non institutional investors) who own shares in Woolworths, are also regular customers who believe in the strength of the business and its ability to continue to thrive long term. If you are a Varilite fan and would spec their lights for a show, would you invest money into the company that owns them based on how well you know the gear?
Did you know: Australia has a population of approximately 25 million people. Woolworths averages about 30 million transactions per week. Coles averages about 20 million transactions per week.
Signify trades on the Euronext Amsterdam Stock Exchange, formerly known as the Amsterdam Stock Exchange. At the time of writing shares sold for about $49.82 AUD (30.37 EUR). They paid a dividend yield of about 5%. A $10,000 investment today would yield you about $500 per year in income. Based off that, it would take you about 20 years to double your investment, provided you don’t reinvest and let compounding do its thing.
But what if you invested $10,000 20 years ago, in early 2003, when the company was called Philips and had not yet been spun off into Signify. And what if you reinvested every dividend for 20 years?
In 2003, $1 AUD got you 0.54 Euro. At that time the company we now know as Signify was trading as Philips. Signify was spun off from Philips in 2016. In 2003, your $10,000 AUD would have bought you 529 shares in Philips. Philips at that time was trading at 10.20 Euro. Today, Signify is trading at 30.37 Euro, which at the time of writing, is a little under $50 AUD.
If you did not buy any more shares and did not reinvest any dividends:
• Your 529 shares today would be worth $26,118 AUD
• You also would have collected a total of $12,728.28 AUD in dividends
• In total you would have $38,846.28 AUD giving you a return of 288% on your original $10,000 AUD investment, without lifting a finger
• Your first annual dividend would have been around $175 AUD, your most recent payment just shy of $1,300 AUD
The numbers become even more impressive if you were to reinvest your dividends
• You would have started with 529 shares in 2003
• By 2023 you would own 1,004 shares worth $49,570 AUD
• In May you would be about to receive an annual dividend of $2,448 AUD which would be buying you another 49 or 50 shares on reinvestment. You would be looking at a 400%+ return. Your first annual dividend would have been around $175 AUD, your most recent payment just shy of $2,448 AUD
If you were to stop reinvesting your dividends today and take them as cash, you can expect to see about a 25% annual return on your original investment, plus you still have your original investment (which has grown 496%) to cash out at any time. How does this compare to any industry-based investment you have made over the years?
Most major brokerage firms in Australia will give you access to overseas markets. At the time of writing, there is no company listed on the Australian Stock Exchange (ASX) that manufactures or distributes brand name entertainment lighting fixtures or accessories.
Making a direct comparison is hard but it can be loosely argued that one of the closest matches for a side by side comparison is Wesfarmers. Wesfarmers is Australia’s largest conglomerate, owning such companies as Bunnings, K Mart, Officeworks, and Target, amongst others.
Let’s run the same analysis on a $10,000 investment in Wesfarmers. In 2003, $10,000 would have gotten you 372 shares.
If you did not reinvest another dollar:
• Those 374 shares would be worth $18,793.50 today, almost an 88% return
• In that time you also would have collected $14,092.32 in dividends
• This gives you a total of $32,885.82 or a 229% return
If you reinvested every dividend:
• You would now have 859 shares worth $43,164.75
• The total dividends for the last 12 months totalled $1,586.72
• You would be looking at a 332% return on your $10,000 investment
Based on the numbers, you would have gotten a better return investing in Signify/Philips than you would have if you invested in Wesfarmers 20 years ago.
A few other quick examples of listed companies that produce gear you might use on gigs:
• Canon (cameras)
• Yamaha (audio equipment)
• Osram (Claypaky lights)
• Nemetschek (Vectorworks)
Buying shares in a company is not the only way people make an investment in the industry. A few more examples include; self education, buying equipment to rent out on the side, buying equipment to use yourself, investing money in a business venture of someone you know, and starting a business yourself, as a few examples. As for what is best, there is no one size fits all, it all depends on the individual, their skill set, their timeframe and their circumstances.
Those looking to make an investment in the industry with an eye to making a respectable and measurable return have a number of options. One of those options is to buy shares and invest in a publicly listed company that produces gig related equipment. The scope for choice and potential here could be much larger and more varied than most people anticipate. What would an investment in one of your favourite brands today yield you 20 years from now?
Quick Comparison Signify Wesfarmers
Share Price $49.82 AUD $50.25 AUD
Market Capitalisation $6.035 Billion AUD $59.08 Billion AUD
Revenue $3.247 Billion AUD $33.94 Billion AUD
Payout Ratio 64% 80.83%
Dividend Yield 4.99% 3.74%
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