Volvo is Sweden’s third most owned stock in terms of the number of unique investors. The stock has always been worth buying during major historical declines. Now about a year and a half of price growth has disappeared and there is a good chance that we are now in another historic buying situation.
A favorite among the distributors
I’ve been thinking for a while about why I was so late to the ball regarding Volvo but haven’t found a direct answer. The best I can come up with is that during the first few years I watched the share price and it was constantly close to the All-Time-High (ATH), which probably scared me.
A little later, I realized, just like many others, that you should never be afraid just because the share price is at its peak, but that there are so many more factors you have to factor into the equation. The price tag of a share is only known if we know what the company is likely to earn this year. The fact that the share price is at its peak should not scare you from investigating the company further.
Volvo is in my opinion one of the best dividend companies on the Stockholm Stock Exchange where you can not only earn big coupons but also get a really good total return over time. If we go back 20 years, you will have received an average of just over 12% annually if you have reinvested the dividend. The last 10 years have been even better with +15% annually.
After Trump lowered the price, the stock is now trading at a 7.5% yield, higher than many of our preferred shares. On average, the yield has been around 6% annually for the last 10 years.
Now the conditions have changed somewhat, but at least before the game plan changed, it was quite clear that Volvo would be able to hand out just as juicy if not even more next year, i.e. 2026.
Volvo’s dividend history has featured numerous extra dividends over the years.
Stock of the week for understandable reasons
Recently, Volvo was named Stock of the Week in Dagens Industri. As the name suggests, it was a great buy recommendation. There was a lot of useful information in their reasoning and I can summarize the most important points, in my opinion:
- Since the company’s CEO Martin Lundstedt took office in 2014, Volvo has transformed into a significantly better listed company. Most notable is the operating margin, which has increased from 3% to a fantastic 12.5% now in 2024. All in just 10 years of transformation. As I mentioned before, the share has also performed at its absolute best during this period.
Martin Lundstedt, CEO of Volvo since 2014
- The tariff war seems difficult to calculate here and now since we are in such an early stage. Analysts may probably lower their forecasts for truck deliveries in the US now that the report is released on April 23. On the other hand, Volvo has significantly more manufacturing in the US than its competitors. That is a huge advantage
- It is not impossible that the dividend of SEK 18.5/share can be maintained even in 2026.
- The Swedish krona has given the stock a tailwind in recent years as it has lost a lot against the dollar. What we have to remember is that this has corresponded to less than 4% of the total adjusted operating profit. Not a lot, in other words.
- Today, Volvo’s valuation measured in ev/ebit* is down to around 8 and P/E on expected profit in 2025 is 11.5. Cheap considering how Volvo’s sales are likely to develop in the coming years.
* debt-adjusted market capitalization divided by expected operating profit for 2025
- During Martin’s time, Volvo has gone from being indebted to now having a record cash position of 48.3 billion if we deduct this year’s dividend. If we do not deduct the dividend, the cash position will be 85.9 billion . This can be compared to 26.3 billion in 2017.
- The big risk right now is, as I said, that analysts will likely lower their forecasts, which could lead to even more price declines. In the long term, this is a minimal problem.
I will continue to trade Volvo at these levels though the prices now seem to be pointing upwards again.
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