I’ve held Talgo for 5 years. My position is down 25% including dividends. I bought it because of its potential: high-speed trains, Spanish technology, and solid contracts.

With Merlin, it was a different story: a 30% gain in value and another 30% in dividends over a similar period. A Spanish REIT with quality assets. It seemed like a safe bet.

Both are in the Low Threshold quadrant on DividendQuad. The numbers don’t lie:

🔴 Talgo ($TLGO (+1,58%)
): Quality 15, Opportunity 10. Negative free cash flow (-€94M). Penalties from Renfe totaling €116M for missed deliveries. Debt-to-equity ratio skyrocketing to 3.27x. The government blocked a takeover by a foreign group. No dividend, no cash.

🔴 Merlin ($MRL (+1,4%)
): Quality 30, Opportunity 15. Cut the dividend by 93.9% in 2026 to finance its pivot to data centers. Current yield: 2.55%. Negative FFO per share (-€1.07). And the risk that the SOCIMI tax regime will be eliminated adds an extra layer of uncertainty.

This week I sold both and made purchases in the following stocks:

🟢 Vinci ($DG (+0,34%) ): Quality 80, Opportunity 85. Yield 4.18%. P/FFO 7.8x. Debt/EBITDA 1.48x. Monopoly concessions with inflation-indexed revenues.

🟢 Standard Life ($PHNX (+0,23%) ): Quality 80, Opportunity 85. Yield 6.14%. The reported losses are purely accounting-related (hedging). Adjusted operating profit grew 15% to £945M. Solvency II surplus of 153%.

🟢 EON ($EOAN (+0,09%) ): Quality 80, Opportunity 85. Yield 2.96%. P/FFO 7.4x. 75–80% of EBITDA comes from regulated networks. The recent net loss was a one-time accounting charge.

I’m glad that since I created my tool, these decisions have become much easier. It helps me separate the emotional aspect from the decision-making process.

I have Merlin Properties ($MRL (+1,4%) ) in my portfolio with a 50% profit. My system gives it a LOW THRESHOLD.

Why?

It’s not because of the yield, even though it’s at ~2.9%; that’s not the main issue. The problem is that the quality score is 30/100.

What does the quality score measure? It doesn’t measure whether the company is good or bad. It measures whether it fits the strategy I’ve defined: buying shares in high-quality essential services companies that pay consistently growing dividends

📉 WHY QUALITY = 30/100:

1. Three dividend cuts in 6 years. Although they were strategic (reinvesting in data centers).

2. The payout ratio is broken. By law, a REIT must distribute >90% of its taxable income. Merlin is retaining massive amounts of capital to build data centers. That’s not what I look for in a dividend REIT.

3. P/FFO of 34x. For a REIT, anything over 20x is already expensive. The market is pricing in the future growth of data centers, not the current dividend.

📈 WHAT I DO LIKE ABOUT MERLIN:

- LTV of 28.9% (excellent, among the lowest in Europe)

- FFO growing +5.1% year-over-year

- 5% discount to NAV

- 3GW of data center pipeline, 112MW already pre-leased

- 95.6% occupancy

It’s a great company. But right now, it’s more of a growth-dividend play than a traditional dividend stock, as defined by my system. The system detects this and lowers its quality rating below 50, not because it’s a bad stock, but because it doesn’t fit the strategy.

My conclusion: I’m selling it. If in 2–3 years the data centers generate sufficient FFO and restore the dividend, the quality rating will rise and I’ll take another look at it.