{"id":31413,"date":"2012-08-06T15:47:44","date_gmt":"2012-08-06T15:47:44","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/08\/five-smart-money-dividend-stocks\/"},"modified":"2012-08-06T15:47:44","modified_gmt":"2012-08-06T15:47:44","slug":"five-smart-money-dividend-stocks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/08\/06\/five-smart-money-dividend-stocks\/","title":{"rendered":"Five Smart Money Dividend Stocks"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

Now and then it is nice to take a peek over the shoulder of a successful investor to see what their high-conviction buys are.\u00a0 When you read a headline that \u201cWarren Buffett is buying Company X,\u201d you\u2019re naturally inclined to do a little digging into Company X\u2019s financials.\u00a0 After all, if it\u2019s good enough for Buffett, it might be good enough for you.<\/p>\n

You have to be careful with this line of thinking, of course.\u00a0\u00a0 The SEC filings that disclose the holdings of large investors are generally pretty dated by the time we have access to them.\u00a0 For all we know, the conditions that made a guru buy a given stock may no longer be valid by the time we read about it, and there are no guarantees that they haven\u2019t already sold it. \u00a0For these reasons, I tend to focus on larger holdings, the conviction buys that they are likely to hold onto for a while.<\/p>\n

Today, I\u2019m going to look at one high-conviction dividend stocks each from five well-known superinvestors.\u00a0 My criteria is simple enough: the stock must be a significant holding in the guru\u2019s portfolio and it must pay a respectable dividend.<\/strong><\/p>\n\n\n\n\n\n\n\n\n
\n

Guru<\/strong><\/p>\n<\/td>\n

\n

Stock<\/strong><\/p>\n<\/td>\n

\n

Ticker<\/strong><\/p>\n<\/td>\n

\n

Yield<\/strong><\/p>\n<\/td>\n<\/tr>\n

Warren Buffett<\/td>\nWal-Mart<\/td>\n\n

WMT<\/p>\n<\/td>\n

\n

2.10%<\/p>\n<\/td>\n<\/tr>\n

David Einhorn<\/td>\nApple<\/td>\n\n

AAPL<\/p>\n<\/td>\n

\n

1.80%<\/p>\n<\/td>\n<\/tr>\n

Joel Greenblatt<\/td>\nNorthrop Grumman<\/td>\n\n

NOC<\/p>\n<\/td>\n

\n

3.30%<\/p>\n<\/td>\n<\/tr>\n

Bill Ackman<\/td>\nGeneral Growth Properties<\/td>\n\n

GGP<\/p>\n<\/td>\n

\u00a02.20%<\/td>\n<\/tr>\n
Mohnish Pabrai<\/td>\nGoldman Sachs<\/td>\n\n

GS<\/p>\n<\/td>\n

1.8%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

We\u2019ll start with Mr. Buffett<\/strong><\/a>.\u00a0 Warren Buffett\u2019s Berkshire Hathaway ($<\/span>BRK-A<\/a>)<\/strong> has been accumulating shares of retail behemoth Wal-Mart ($<\/span>WMT<\/a>),<\/strong> and it\u2019s not hard to understand why.\u00a0 Wal-Mart is exactly the kind of company that Buffett is famous for buying.\u00a0 \u00a0\u00a0\u00a0It has a dominant position as the leading discount retailer in the world. \u00a0It has competitive \u201cmoats\u201d in its size and logistical efficiency that competitors have a hard time scaling.\u00a0 And naturally, it\u2019s attractively priced. Wal-Mart trades for 14 times 2013 expected earnings and at 0.55 times sales.\u00a0 Its 2.10% dividend, while not exceptionally high, is growing at a nice clip.\u00a0 Wal-Mart raised its dividend 9% last year and 20% the year before.<\/p>\n

Our next guru is David Einhorn<\/strong><\/a>.\u00a0 Einhorn is better known for some of his high-profile short positions\u2014he even wrote a book about his short of business development company Allied Capital, Fooling Some of the People All of the Time<\/em>\u2014but he is certainly not afraid to make large, concentrated long bets as well.<\/em><\/p>\n

As of his most recent filings, former high-flyer Apple ($<\/span>AAPL<\/a>) <\/strong>was his largest holding by a wide margin at fully 15% of Greenlight Capital\u2019s publicly-traded long portfolio.<\/p>\n

It is debatable whether Apple should be considered a \u201cdividend stock\u201d given that the company only recently started paying a dividend and yields less than the broader S&P 500.\u00a0 Still, given Apple\u2019s gargantuan $100 billion cash hoard and continued shareholder agitation, it is safe to assume the dividend will be rising in the years ahead.<\/p>\n

Joel Greenblatt<\/a> <\/strong>of Gotham Capital is one of my favorite gurus. His \u201cMagic Formula<\/a>\u201d is one of the best stock screeners I have ever come across, and he gives away access to it for free.\u00a0 I\u2019ve stumbled across more great investment ideas than I can count from browsing his site, and I recommend that you give it a look.<\/p>\n

Greenblatt is heavily invested in defense firms these days, and one that caught my eye was Northrop Grumman Corporation ($<\/span>NOC<\/a>).<\/strong><\/p>\n

Northrop Grumman is not a \u201chigh conviction\u201d pick of Greenblatt, per se, as its weighting is not materially higher than any of his other holdings.\u00a0 It is, however, a highly-profitable company selling at a very attractive price.\u00a0 Northrop Grumman trades for just 9 times expected 2013 earnings and yields an impressive 3.3% in dividends.<\/p>\n

Next on the list is Bill Ackman<\/strong><\/a>, Greenblatt\u2019s former partner at Gotham Capital and the principal of Pershing Square Capital Management.\u00a0 Ackman is an activist investor with a history of taking large positions in companies and then agitating for radical change.<\/p>\n

One such company in need of radical change is the iconic American retailer JC Penney Company ($<\/span>JCP<\/a>)<\/strong>.\u00a0 Penney is Ackman\u2019s largest position, comprising fully 17% of his portfolio.<\/p>\n

The company recently cut its dividend and is in the midst of an existential crisis, so we\u2019ll move down the list to his first dividend stock of any size, diversified REIT General Growth Properties ($<\/span>GGP<\/a>)<\/strong>.<\/p>\n

A retail REIT may raise eyebrows when consumer spending appears to be slowing, but investors don\u2019t appear to be worried. General Growth is up 20% year to date, roughly double the return of the S&P 500.<\/p>\n

With a yield of 2.20%, General Growth is certainly not a big income generator, particularly by REIT standards. Still, a reliable 2.2% is attractive in a low-yield world.<\/p>\n

As a side note, Ackman has a large position in Sizemore Investment Letter<\/em> recommendation Beam Inc ($<\/span>BEAM<\/a>)<\/strong>, the maker of Jim Beam bourbon whiskey. \u00a0Though not much of a dividend stock, it is attractive as a recent spin-off and as a money-minting sin stock.<\/p>\n

Finally, we come to Mohnish Pabrai<\/strong><\/a>, author of the Dhandho Investor<\/em> and one of my favorite investors. Pabrai is known for running a highly-concentrated portfolio and for good reason.\u00a0 As of his most recent filings, two thirds of his portfolio was invested in the financial sector.<\/p>\n

Pabrai\u2019s largest holding that pays a dividend of any size is Wall Street superbank Goldman Sachs (GS)<\/strong>, which yields a modest 1.8%.<\/p>\n

Pabrai is betting big on the financial sector, and Goldman alone accounts for over 19% of his portfolio.\u00a0 To say that this was a \u201chigh-conviction\u201d investment for Mr. Pabrai would be an understatement.<\/p>\n

Of all the guru stocks profiled in this article, the one I find most compelling is Mr. Buffett\u2019s Wal-Mart, which I own both personally and in client accounts.\u00a0 Though considering the track records of each of the gurus, a case could be made for considering any of these dividend-paying stocks.<\/p>\n

Disclosures: Sizemore Capital is long BEAM and WMT.<\/p>\n

 <\/p>\n

Related posts:<\/p>\n