By Siraj Sarwar
Tweedy, Browne is one of the largest fund managers in the U.S. The fund applies a value-oriented approach to pick its stocks. As such it looks for undervalued stocks that offer substantial dividends. I think this is a solid strategy, which is backed by strong arguments. Over the long haul, the return from dividends has been a considerable factor to the overall portfolio return produced by equities.
In this article, I look into Tweedy, Browne's five most significant dividend stocks that constitute a substantial portion of the fund's portfolio. These stocks are ConocoPhillips (COP), Johnson & Johnson (JNJ), Norfolk Southern Corporation (NSC), GlaxoSmithKline PLC (GSK), and Novartis AG (NVS). I briefly explore each stock's track record. I also explain the trading activities of the fund manager with regard to each stock.
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ConocoPhillips works as an integrated energy corporation. The company is engaged in Exploration and Production, Midstream and Refining and Marketing Businesses segments. Based on WhaleWisdom, Tweedy, Browne remains a favorite dividend stock over the previous two years.
Tweedy, Browne initiated a position in ConocoPhillips in 2010 and ranked it at number 5 in its portfolio. Last quarter, the fund manager increased a position in the company by increasing its shares by 1%. At present, Tweedy, Browne owns 2.9 million shares, and it forms a 5.46% of its portfolio.
The company has been offering significant returns to investors. Recently, it announced a quarterly dividend of $0.66 per share. ConocoPhillips has had sustained similar quarterly dividends over the past two years. In 2012, the company paid a dividend of $2.64 per share.
The company has not been increasing dividends over the past two years. ConocoPhillips is engaged in disposition and acquisitions of its assets. On the other hand, the company's revenue is growing at a high rate. Since 2010, it has been able to increase revenues by $100 billion to $247 billion by the end of 2012. But 2012 remained a difficult year, and earnings were short by $4 billion. However, ConocoPhillips achieved its production targets and continues to effectively complete growth projects and drilling programs. During the same period, COP also disintegrated its downstream assets into a separate entity, Phillips 66 (PSX). Now, its refinery assets are excluded, it can turn its focus more into growth prospects.
Johnson & Johnson is engaged in research and development, manufacture and sale of a variety of products in the healthcare sector. The company has a long history of creating value for shareholders. Over the years, JNJ has been offering solid dividends to investors. Recently, it announced a quarterly dividend of $0.61 per share. For the full year of 2012, the company paid a dividend of $2.24 per share, yielding at 3.23%.
Furthermore, Johnson & Johnson has solid financials and a diversified revenue base to back its dividends. At the end of 2012, the company revenue stood at $67.2 billion, an increase of 3.86%. Over the years, the company has shown remarkable performance both in domestic and international operations.
Tweedy, Browne currently holds 4.3 million shares of Johnson & Johnson. The company is ranked at first place in the fund manager's portfolio. Based on WhaleWisdom, the fund manager initiated a position in JNJ in 2010 with 2.6 million shares, which increased to 4.3 million, at present. I believe Johnson & Johnson is a beneficial inclusion in any portfolio because it has a diverse revenue base, a robust research pipeline, and exceptional cash-flow generation ability.
Johnson & Johnson is a large-cap stock and has diversified operation all over the globe. Despite a large operational structure, it has high margins while successfully converting sales into net profits. The company has huge operating and net margins of 23.6% and 16.1% respectively. In addition, JNJ has stable cash flows at present.
Norfolk Southern Corporation is engaged in the rail transportation of raw materials, intermediate products, and finished goods. Over the years, the company has been providing significant returns to investors. Norfolk has a long history of consecutive dividend payments. Since its inception, the company has paid dividends for 122 consecutive quarters. Currently, the company has a quarterly dividend of $0.50 per share. In 2012, Norfolk has paid annual dividends of $1.97 per share, yielding at 2.76%.
The company has displayed strong growth and solid financials over the years. At the end of Q4, it generated a net income of $413 million. The company has experienced a decline in coal shipments; however, it saw improved volumes in its auto, chemicals, and housing sectors. In addition, the company plans to invest nearly $2 billion in growth opportunities to further enhance its earnings and cash flows.
Tweedy, Browne's manager also seems optimistic about Norfolk's performance. Recently, the fund manger increased its stake in the company by 10% to 0.58% of the portfolio.
GlaxoSmithKline PLC is engaged in the creation and discovery, manufacture and marketing of pharmaceutical products. At the moment, GlaxoSmithKline is experiencing unstable times in Europe. The company has been experiencing economic problems at present. However, its strong balance sheet and diversified product portfolio are helping it to weather economic head wind times. Thus, even in these difficult economic situations, it has been able to increase dividends. Recently, it announced a quarterly dividend of $0.22 per share.
Moreover, the company continues to keep its focus on dividend growth. It recently initiated a repurchase program of $2 billion. GlaxoSmithKline offers a hefty dividend yield of 5.3% and is able to generate strong cash flows to secure those dividends. The company has a solid product pipelines and is actively looking for emerging markets to increase revenues.
At the end of Q4, Tweedy, Browne increased its stake in GlaxoSmithKline by 20%. GlaxoSmithKline remains a consistent favorite dividend stock for the fund manager. At present, Tweedy, Browne holds 0.15 million shares of GlaxoSmithKline, which forms 0.225 of the portfolio.
Novartis AG provides healthcare solutions that deal with the growing needs of patients and societies worldwide. The company's portfolio includes innovative medicines, generic pharmaceuticals, preventive vaccines & diagnostic tools and consumer health products.
Furthermore, Novartis is one of best stocks among the healthcare sector. The company is performing truly well, at a time when the industry is plagued by stagnant growth. Over the year, the price has appreciated by nearly 20%. The stock is on a surge as investors are appreciating its diversified operating platforms and number of new potential blockbuster drugs.
Over the years, the company has paid a significant amount to investors in dividends. The entire industry is under economic pressure, which is resulting in lowering dividends. Novartis also reduced dividends in order to enhance potential growth. Recently, the company has announced a healthy dividend of $1.64 per share for 2012.
Novartis has been a solid dividend stock in Tweedy, Browne's portfolio over the past two years. Tweedy, Browne initiated a position in Novartis by purchasing 0.363 million shares. At present, the fund manager holds 0.30 million shares, constituting 0.60% of the portfolio.