By The Sizemore Letter<\/u><\/p>\n
With the 10-year Treasury yield hitting new multi-year highs and all dividend-focused stock taking a beating as a result, income investors can be forgiven for feeling a little uneasy at the moment.\u00a0 It\u2019s unsettling to buy a REIT, MLPs or dividend-paying stock in the hopes of enjoying a nice 4-5% yield only to lose two or three times that much due to price declines.<\/p>\n
During times of turbulence, it can be helpful to take a peek over the shoulder of a successful investor you respect to see how they are reacting.\u00a0 You shouldn\u2019t mindlessly ape what they are doing, of course.\u00a0 But following their trading moves can give you a sense of perspective.<\/p>\n
With that in mind, let\u2019s take a look at three investment gurus to see what dividend-focused investments they are buying\u2014or perhaps not buying.<\/p>\n
No guru list is complete without a mention of the Sage of Omaha, so I\u2019ll start with Warren Buffett<\/a>.<\/strong>\u00a0 I wrote a short piece<\/a> last week outlining some of Buffett\u2019s recent purchases, though most of the comments centered around non-dividend paying companies such as Dish Networks (<\/span>DISH<\/a>)<\/span><\/b>.<\/p>\n Interestingly, none of Buffett\u2019s major new additions are \u201cdividend focused,\u201d per se.\u00a0 Suncor Energy (<\/span>SU<\/a>)<\/span>,<\/b> one of his larger new holdings, pays a modest 2.3%.<\/p>\n Perhaps his most promising dividend payer is his old standby\u2014Wells Fargo & Company (<\/span>WFC<\/a>)<\/span>.<\/b>\u00a0 Buffett has owned Wells Fargo for years, and it is currently the largest single holding in his portfolio.\u00a0 He\u2019s been adding to the position throughout 2013, and he snapped up nearly 5 million shares last quarter.<\/p>\n Wells Fargo may seem an odd choice as a \u201cdividend stock,\u201d given that the company yields only 2.5%.\u00a0 Like most banks, Wells Fargo slashed its dividend during the crisis to conserve capital. Yet since 2011, Wells Fargo has been aggressively raising its dividend, from a $0.05 per quarter in February of that year to $0.30 per quarter today.\u00a0 The dividend is now nearly back to pre-crisis levels.<\/p>\n We can\u2019t expect the dividend to rise by a factor of six again over the next two years; those sorts of jumps only happen when you take those first steps out of crisis.\u00a0 But I do expect the bank to deliver better than average dividend growth for the next several years.<\/p>\n Next on the list is one of my favorite value managers, David Dreman<\/a>.<\/strong>\u00a0 If you\u2019re not familiar with Dreman, you should be.\u00a0 He wrote the book on contrarian investing, and I mean that literally.\u00a0 His Contrarian Investment Strategies<\/i><\/a> is a classic any serious investor should have in their library.\u00a0 He\u2019s also a regular contributor to Forbes<\/i>.<\/p>\n So, what has Mr. Dreman been buying?<\/p>\n One position that caught my eye is Mack-Cali Realty Corp (<\/span>CLI<\/a>)<\/span><\/b>, a real estate investment trust specializing in office and light industrial properties.<\/p>\n REITs have gotten pounded in the recent \u201ctaper\u201d turbulence, and Mack-Cali is no exception.\u00a0 In the past three months, the stock has lost a quarter of its value.\u00a0 But as the consummate contrarian, Dreman appears to view the sell-off as an opportunity.<\/p>\n In looking at Dreman\u2019s portfolio<\/a>, it is clear that he does not take large, overweighted positions, and his overall investment in Mack-Cali is fairly modest.\u00a0 Still, it is telling that he is buying REITs at all given the recent volatility in their share prices.<\/p>\n At current prices, Mack-Cali yields a juicy 5.6%.\u00a0 Though disturbingly, the dividend was recently cut by a third.\u00a0 I like David Dreman, and recommend you read his books.\u00a0 But as a general rule, I don\u2019t like to buy REITs with falling dividends.\u00a0 In fact, I like to see a long track record of growing <\/i>dividends.\u00a0 I would gladly take a Realty Income (<\/span>O<\/a>)<\/span> <\/b>or a National Retail Properties (<\/span>NNN<\/a>)<\/span><\/b> over Mack-Cali.<\/p>\n Speaking of Realty Income, I noticed that my favorite REIT recently popped up in the portfolio of quantitative hedge fund legend Jim Simons<\/a><\/strong>, the CEO of Renaissance Technologies.<\/p>\n Renaissance Technologies returns over the years have been mind-blowing.\u00a0 If fact, if I hadn\u2019t already been familiar with Simons, I would have assumed his returns were bogus.\u00a0 They seem too good to be true.\u00a0 Simons\u2019 Medallion fund became the stuff of legends by generating annual returns in excess of 35%since 1988\u2026and that was after the fund\u2019s hefty fees were taken out.<\/p>\n Renaissance Technologies added shares of Realty Income in the second quarter. Given Renaissance Technologies\u2019 fast-moving trading style, it\u2019s possible that they already liquidated the position.\u00a0 Still, other gurus have been snapping up shares as well, including Ray Dalio and Steven Cohen<\/a>.<\/p>\n Because of Realty Income\u2019s position as a \u201cbond substitute,\u201d its share price has been hit particularly hard among REITs.\u00a0 The same is true for its peers in the conservative triple-net retail sector.\u00a0 But at current prices, Realty Income yields 5.4%\u00a0 And I should emphasize that this is one of the most consistent dividend payers (and serial raisers) you can find on any stock exchange in the world.\u00a0 This is a REIT that skated through the 2008 meltdown with nary a scratch.<\/p>\n I suspect that were I to write this article next quarter, I might find quite a few new smart money gurus among its owners.<\/p>\n Disclosures: Sizemore Capital is long O and NNN.<\/p>\n SUBSCRIBE\u00a0<\/b><\/a>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n