{"id":44446,"date":"2013-11-21T13:23:11","date_gmt":"2013-11-21T18:23:11","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=44446"},"modified":"2013-11-21T13:23:11","modified_gmt":"2013-11-21T18:23:11","slug":"five-dividend-stocks-owned-by-the-masters-of-the-universe","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/11\/21\/five-dividend-stocks-owned-by-the-masters-of-the-universe\/","title":{"rendered":"Five Dividend Stocks Owned by the Masters of the Universe"},"content":{"rendered":"

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

Now and then it is nice to take a peek over the shoulder of a \u201cmaster of the universe\u201d to see what their high-conviction buys are.\u00a0 When you read a headline that \u201cWarren Buffett<\/a> 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

Related: What\u2019s Warren Buffett Up To?<\/a><\/p>\n

You have to be careful with this line of thinking, of course.\u00a0\u00a0 The SEC 13-F filings that disclose these holdings 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.\u00a0 There is also no way to track hedges or off-setting short positions in the event that the stock is part of a pair trade, nor are derivatives or options positions mentioned at all.<\/p>\n

For 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.<\/p>\n

I\u2019ll start with Mr. Buffett.\u00a0 Earlier this week I wrote a short piece<\/a> that gave the rundown on Berkshire Hathaway\u2019s latest portfolio moves, and particularly its accumulation of dialysis provider DaVita<\/b> (<\/span>DVA<\/a>)<\/span>.\u00a0 Well, as much as I like DaVita, it doesn\u2019t pay a dividend, so it is off limits for this particular article.\u00a0 But Exxon\u00a0 Mobil<\/b> (<\/span>XOM<\/a>)<\/span> is a very different story.<\/p>\n

Berkshire Hathaway made a $3.5 billion investment in Exxon, reinforcing my belief that the global oil majors are a bargain after a disappointing couple of years in the market.\u00a0 Yes, earnings growth has been modest.\u00a0 But at just 12.4 times earnings and 1.1 times sales, Exxon is being priced as if it will never grow again.<\/p>\n

Exxon also happens to be a dividend-raising powerhouse.\u00a0 It has raised its dividend for 31 consecutive years, and counting, at an average annual rate of 6.3%<\/a> over the period.\u00a0 And there is plenty of room for more; its dividend payout ratio is a modest 31%.<\/p>\n

At current prices, Exxon sports a dividend yield of 2.6%, just slightly less than what you can get from a 10-year Treasury note.\u00a0 But 10 years from now, Exxon\u2019s payout is likely to be 80%-90% than it is today, whereas the Treasury\u2019s coupon payment will be unchanged.\u00a0 If those are my two choices, I\u2019m going with Exxon.<\/p>\n

Next, let\u2019s take a look at the portfolio of Hayman Advisors\u2019 Kyle Bass<\/a>.\u00a0 Bass is a Dallas-based hedgie best known as a macro trader and as a major long-term bear on Japan.\u00a0 I share Bass\u2019s view on Japan (see The Case to Short Japanese Bonds Lives<\/a>), but that is another story for another day.<\/p>\n

But while Bass is best known as a \u201cbig picture\u201d macro guy, he\u2019s also a talented stock picker.\u00a0 And he happens to share my current enthusiasm for mortgage REITs.\u00a0 His stake in PennyMac Mortgage Investment Trust <\/b>(<\/span>PMT<\/a>)<\/span> makes up 20% of his long portfolio.<\/p>\n

I should clarify one point\u2014I\u2019m not a big fan of mortgage REITs as a long-term asset class.\u00a0 Unlike equity REITs, which invest in real property, mortgage REITs do nothing but buy and sell mortgages and mortgage securities.\u00a0 They\u2019re essentially variable-rate bonds with all the risks of equities.<\/p>\n

But to everything there is a season, and right now mortgage REITs are attractive.\u00a0 The spread between their borrowing and lending rates are some of the highest in years, and many trade for significantly below their book value.\u00a0 It\u2019s hard to lose money buying dollar bills for 80 or 90 cents.<\/p>\n

PennyMac currently pays a dividend of 10.2%, and it trades at book value.\u00a0 Rather than buy a single mortgage REIT like this, I would be inclined to buy a basket of several or to go the \u201cone stop shop\u201d route and buy a mortgage REIT ETF such as iShares Mortgage Real Estate Capped <\/b>(<\/span>REM<\/a>)<\/span>.<\/p>\n

Next on the list is Prem Watsa<\/a>, the founder of Fairfax Financial Holdings<\/b> (<\/span>FRFHF<\/a>)<\/span>.\u00a0 Watsa is sometimes called the \u201cWarren Buffett of Canada\u201d due to both his value investing prowess and the fact that, like Buffett, he uses an insurance powerhouse as the foundation of his investment empire.<\/p>\n

Watsa has a little egg on his face at the moment.\u00a0 He accumulated an enormous position in BlackBerry <\/b>(<\/span>BBRY<\/a>)<\/span> that now makes up a full quarter of his long stock portfolio.<\/p>\n

Related: BlackBerry Makes Even Investing\u2019s Greats Look Foolish<\/a><\/p>\n

I wouldn\u2019t touch BlackBerry, even at current prices.\u00a0 But one of Watsa\u2019s newer buys caught my attention: British oil major BP<\/strong> (<\/span>BP<\/a>)<\/span>.<\/p>\n

Like Warren Buffett, the Warren Buffett of Canada appears to see value in Big Oil.\u00a0 And BP is one of the highest-yielding mega-caps on the market\u2014the company sports a dividend yield of 4.8%.<\/p>\n

BP slashed its dividend in half after the 2010 Deepwater Horizon oil spill in the Gulf of Mexico hit the company like a wrecking ball.\u00a0 Total criminal and civil settlements and payments have already totaled over $40 billion, and the final total may not be known until 2014 or later.<\/p>\n

Yet the company has managed to get on with business, and it has raised its dividend in each of the past two years.<\/p>\n

Let\u2019s now jump to the portfolio of Oaktree Capital\u2019s Howard Marks<\/a>.\u00a0 Marks is one of the most respected investors in the business, and I reviewed his most recent book<\/a>, The Most Important Thing Illuminated<\/i>, earlier this year.\u00a0\u00a0 Warren Buffett, incidentally, laconically called it \u201cthat rarity, a useful book.\u201d)<\/p>\n

Marks initiated a position last quarter in the mother of all dividend payers: Big Tobacco giant Altria<\/strong> (<\/span>MO<\/a>)<\/span>.
\nI\u2019ve been fairly bearish on Big Tobacco for the past year (see Big Tobacco Botches the E-Cig Name Game<\/a> as a recent example), and I consider Altria to be a little on the pricey side given its lack of growth prospects.<\/p>\n

That said, if the market cools off after its recent blistering rise, a defensive name like Altria will probably hold up better than most.\u00a0\u00a0 And its 5.1% dividend yield is nearly double the yield on the 10-year Treasury.<\/p>\n

Altria is not my favorite dividend stock.\u00a0 But you could do worse.<\/p>\n

And finally, we get to the granddaddy of all macro traders, the legendary George Soros<\/a> himself.<\/p>\n

Soros is best known as the man who bankrupted the Bank of England (and pocketed a cool billion for himself in a single day) by shorting the pound in 1992.<\/p>\n

Soros\u2019s funds are no longer open to outside investors, and that is a shame.\u00a0 During the Quantum Fund\u2019s heyday between 1969 and 2000, Soros generated 32% average annual returns.<\/p>\n

So what are Mr. Soros and his associates buying these days?<\/p>\n

One recent addition that caught my eye was Microsoft<\/strong> (<\/span>MSFT<\/a>)<\/span>.<\/p>\n

Microsoft has really stepped up its game in recent years as a premier dividend payer.\u00a0 It currently yields 3.0%, which is among the highest on the market for a tech stock.<\/p>\n

Microsoft grew its dividend 15% in 2013\u2026after growing it 25% in 2012 and 23% in 2011. The dividend has more than doubled since 2008, and there is plenty of room for more.\u00a0 The dividend payout ratio is only 34%.<\/p>\n

The company has taken heat for botching the Windows 8 rollout with a user interface that alienates its core clientele\u2014desktop and laptop PC users.\u00a0 More broadly, investors hate the fact that Microsoft \u201cmissed\u201d mobile and is stuck in a long uphill fight playing catch-up.<\/p>\n

All of this is true.\u00a0 Yet the company has still managed to grow its earnings at a healthy clip through robust sales of its Office suite, its server business, and its other services for enterprise clients.\u00a0 If the company ever catches up in mobile\u2014and they appear to be making headway\u2014consider it icing on the cake.<\/p>\n

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DVA, MO and MSFT.\u00a0Click here<\/a>\u00a0to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his\u00a0<\/i>2014 Macro Trend Profit Report.<\/p>\n

This article first appeared on Sizemore Insights as Five Dividend Stocks Owned by the Masters of the Universe<\/a><\/p>\n

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