By Michael Acebo
Today we continue to mine the portfolios of some well known investment gurus for dividend stock ideas. We examined the recent purchases of Whitney Tilson, David Einhorn, David Dreman, Jean-Marie Eveillard, Joel Greenblatt and Tweedy Brown to see what these gurus have been buying recently. With a track record of success and over $40 billion in combined assets under management, these gurus can provide a good source of ideas for main street investors. We discovered recent purchases of a large personal goods manufacturer, a communications company, an asset management firm and a disk drive distributor. Below is our analysis of each company. As always, please use this article as a starting point for your own due diligence. For our other dividend stocks owned by the 'smart money' click here.
Kimberly Clark Corp (KMB)
Shares of KMB hit a 52 week high a couple of weeks ago. It seems the market prefers companies that manufacture products that will never go obsolete. In the case of KMB, it has a good personal care product portfolio that people will use regardless of economic conditions.
The stock is still undervalued even at these levels. The stock trades at 12.80 times forward earnings and offers a 4.20% dividend yield. Noticeably other mass market healthcare stocks trade at similar levels. Procter & Gamble (PG) is valued at 13.43 times earnings and has 3.40% dividend yield, and Johnson & Johnson (JNJ) trades at 12.02 times with a 3.60% dividend yield. Historically, the stock trades between 13.03 to 20.92 times earnings. The company has steadily grown its earnings by 4% over the last 5 years but with higher dividend growth of 7.96% over the same period. Capital spending appears low as well. Investors are assured that dividends will continue over the next years. The stock has fallen by 3% off its 52 week high. Prospective buyers of KMB could accumulate at these levels. Jean-Marie Eveillard owns this stock.
RR Donnelly and Sons Co. (RRD)
RR Donnelly and Sons Co. is an integrated communications company. It provides tailored communications solutions and has been in the business for more than 100 years. The company has a good financial track record. For the last 5 years, it has grown its earnings per share by 19.10%. This is good as the industry has posted declining growth over the same period. In turn, dividends have also grown by 4% a year. The company has solid cash flows at more than $600 million a year. The company can easily cover dividend payments every year.
The stock trades at 6.82 times next year’s earnings and offers a 7.50% yield.. In contrast to other similar companies, the stock trades slightly lower. Cenveo Inc. (CVO) trades at 6.92 times earnings and Champion Industries Inc. (OTCQB:CHMP) at 13 times earnings. RRD has been acquiring some companies recently. This year, it has acquired Andover, LibreDigital and Genesis Packaging and Design Inc. Analysts are bearish on the stock due to the economic prospects of the industry. But the dividend yield alone makes it an attractive purchase. David Dreman has been adding more RRD into his portfolio.
Federated Investors Inc. (FII)
Federated Investors Inc. is one of the leading asset management companies. The recent annual reported showed that it manages money market funds amounting to $244.8 billion in assets, fixed income funds at $31.9 billion and equity funds at $22.6 billion. The market has been bearish on listed funds. In fact, FII has declined by 35.63% for the year. Investors have been buying safe-haven investments these days. The fear stems from the fact that this could be another financial crisis and large redemption will be prevalent.
At the current price of $16.84, the stock trades at 9.79 times next year’s earnings and offers a dividend yield of 5.90%. This is lower than fellow listed asset managers. Franklin Resources Inc. (FED) trades at 11.72 times and has a dividend yield of 0.90% and Legg Mason Inc (LM) is valued at 10.69 times earnings and has a 1.20% dividend yield. The recent quarter showed that the company has outperformed the market in some of the funds it manages. Compared to other well-known fund managers, the market discounts the earnings ability of FII. However, the company has posted good growth over the last years. Joel Greenblatt and Tweedy Browne are among the fund managers who believe in the stock.
Seagate Technology Plc (STX)
Seagate Technology is a maker and distributor of disk drives. These disk drives are used for enterprise servers, mainframes and workstations, as well as client computer applications. Shares have declined by 24% for the year. The market is expecting a softening in the product volumes sold due to lower PC sales and competition. The issue with competition is that there are obvious price cuts moving forward. We are not seeing this as of late as margins have been stable. The company has experienced a decline in sales on a month-on-month, as well as on a trailing basis.
The stock is currently valued at five times forward earnings and offers a 6.40% dividend yield. Similar companies like Western Digital Inc. (WDC) trades at 6.65 times and Sandisk Corp. (SNDK) at 8.8 times earnings. These are depressed valuations due to expectations that sales will continue to fall in the coming quarters. It's the income feature of STX make it attractive to investors. The cash flow of STX is around $1.26 billion, which cover more than 4 times the dividends. Investors can be assured that dividends will be paid despite a drop in revenues. David Einhorn and Whitney Tilson have added more STX in their recent filing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.