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Donald Yacktman is a value investor who manages two mutual funds, Yacktman Fund and Yacktman Focused Fund. Yacktman established his fund company, Yacktman Asset Management LP, in 1992. Currently, the Yacktman Fund's assets totaling $7.8 billion are invested in 61 different equity holdings. The fund's holdings are mainly large-cap stocks. The fund has returned 9.58% over the past five years and 11.49% over the past decade. It currently yields 1.58% per year and has an expense ratio of 0.80%. On the other hand, Yacktman Focused Fund has returned 9.8% over the past five years and 11.1% over the past decade. It yields 0.95% and has an expense ratio of 1.25%. Both Yacktman funds are now part of Managers Investment Group.

Yacktman manages concentrated portfolios. He holds that "beyond a certain point, the more diversification (there is), the more likely one will get mediocre returns." His picks are high-quality, attractively valued companies with solid earnings growth and stability and strong cash flows. His focus are the stocks that offer long-term capital appreciation and current income.

Below is a quick overview of the largest five positions in Yacktman Fund's second-quarter portfolio that pay dividends.

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Procter & Gamble (PG) was Yacktman's second largest investment in the second quarter, after News Corp. (NWSA). The stake is currently valued at almost $1.83 billion. The company is the largest producer of household and personal care products by revenue. P&G's EPS is forecast to expand at 8.3% per year for the next five years. The company's diversified product mix and emerging market exposure will help grow sales in the future. Sales growth in the developed markets will be modest. Recently, the company lowered revenue and profit guidance. It has struggled to maintain its market share in certain high-margin businesses and was unable to push through higher prices of several detergent brands. The company is a target of the activist fund manager Bill Ackman, who has bought as much as $2 billion in the company's stock with the objective, reportedly, to change the company's management. There are other speculations about his intentions with the company, including a possible split and sale of non-core assets to unlock value.

P&G pays a dividend yield of 3.4% on a payout ratio of 61%. Its peers Kimberly-Clark Corporation (KMB) and Johnson & Johnson (JNJ) are currently each yielding 3.6%, while Colgate-Palmolive Co. (CL) is yielding 2.4%. P&G's shares are trading at $66.48, up 8.7% over the past year. The stock has a forward P/E on par with the nondurable household products industry. In addition to Ackman, Warren Buffett is a major investor in the stock.

PepsiCo Inc. (PEP) was the third largest holding in the Yacktman Fund in the second quarter. That stake is currently valued at about $1.6 billion. PepsiCo Inc. is a $112 billion soft drinks and snacks business, with drinks and snacks revenues almost equally divided. The company is a dividend aristocrat that has raised dividends for 40 consecutive years. PepsiCo's EPS is expected to expand at 6.4% per year for the next five years, two thirds faster than over the past five years. The company is undergoing a transformation, expanding its product mix to include new varieties of nutritional and other products. Earlier this year, the company announced layoffs for 3% of its workforce in an effort to save $1.5 billion by 2014, offsetting higher input and advertising costs. The company's snacks operations have fared better than soda sales, as rival Coca-Cola Company (KO) has been taking away PepsiCo's soda market share. This has prompted some investors to recommend the company to split its snacks and beverage businesses. However, this idea has been rejected by the company based on the argument that the two businesses enjoy significant synergies.

PepsiCo pays a dividend yield of 3.0% on a payout ratio of 57%. Its rivals Coca Cola and Dr Pepper Snapple Group (DPS) have yields of 2.6% and 3.0%, respectively. On a forward P/E basis, PepsiCo's stock is trading at a discount relative to its peers. Selling for $72 a share, the stock is up about 14% over the past 12 months. Billionaires George Soros and Jim Simons are also bullish about the company.

Microsoft Corporation (MSFT) was the fourth largest position in Yacktman's portfolio in the second quarter. It is currently valued at $916 million. Microsoft sells and licenses software products, enterprise consulting services, online information and content services, gaming consoles, and other products and services. The company reported record revenues and operating income in the past quarter. It is forecast to bolster its EPS at an average rate of 9% per year for the next five years. The company's enterprise business has seen solid growth. This year is big for Microsoft's new product releases, such as Windows 8, Server 8, Office 15, and tablet Surface. Good adoption of these products could boost confidence in this technology bellwether, continuing to make it one of the most widely held companies among hedge funds. The company is a cash cow with a respectable yield. It also has a high free cash flow yield of 9%, an ROE of 27.5%, and return on invested capital (ROIC) of 23%.

Microsoft is paying a dividend yield of 2.6% on a payout ratio of 40%. Competitor Oracle (ORCL) yields 0.8%, while rivals IBM Corporation (IBM) and Apple Inc. (AAPL) each yield 1.7%. Rival Google (GOOG) does not pay any dividends. Microsoft's stock is trading at a deep discount to its peer group. At $30.70 per share, the stock is up 21% over the past year. The stock is also popular with Boykin Curry and Ken Fisher, all of whom invested more than $500 million in the stock.

Sysco Corp. (SYY) was the fifth largest position in Yacktman's fund in the second quarter. Currently, the position is worth some $847 million. Sysco is the largest U.S. food distributor, providing food and related products supplies to restaurants, schools, hospitals, and hotels. The company's EPS growth is forecast to average 5.8% per year for the next five years. Although the company has benefited from its large scale and efficiency in the stable food service distribution industry, rising food prices have squeezed its margins. The current drought, causing the grain prices to skyrocket, is likely to worsen the margin situation. Still, in the previous quarter, due to higher food pricing, the company was able to beat analysts' revenue expectations, although its profit fell from the last year's level.

Sysco Corp. is a dividend aristocrat that has raised dividends for 42 consecutive years. The company is currently paying a dividend yield of 3.7% on a payout ratio of 55%. Its rival United Natural Foods, Inc. (UNFI) does not pay any dividends, while Nash-Finch Company (NAFC) pays a dividend yield of 3.5%. The stock appears attractive based on its trailing and forward P/Es. Changing hands at $29.2, the company's shares are up 3% over the past year. Aside from Yacktman, fund manager Jean-Marie Eveillard reported holding almost $700 million in the stock at the end of the first quarter of 2012.

Cisco Systems (CSCO) was the sixth largest position in the Yacktman Fund in the second quarter. That stake is currently valued at $798 million. Cisco Systems is a network equipment giant with $93 billion in market capitalization. The stock is forecast to boost its EPS at 8% per year for the next five years. Piper Jaffrey and Goldman Sachs recently upgraded their ratings on Cisco Systems, citing "better-than-expected business demand." Analysts see the headwinds associated with lower demand from Europe as already factored into stock valuations. Cisco is expected to meet or beat revenue expectations in the coming quarters. Moreover, the company's cost discipline should "drive better than expected EPS results." Share buybacks will also boost EPS growth. Based on reports showing strong enterprise growth (especially in switching), Goldman Sachs added the company's shares to its "Conviction Buy List" with a $24 price target, implying a nearly 40% upside from the current prices.

Cisco Systems pays a dividend yield of 1.9% on a low payout ratio of 24%. Competitors Alcatel-Lucent (ALU) and Juniper Networks (JNPR) do not pay any dividends, while Hewlett-Packard (HPQ) pays a dividend yield of 2.7%. The stock is currently trading at a 37% discount to its industry, based on the forward P-E ratios. Cisco's stock is trading at $17.34 a share, up 8.4% over the past year. Again, value investor Eveillard was a major investor in the stock. He held $880 million in Cisco's stock at the end of the first quarter, while Andreas Halvorsen had more than $680 million.

Source: Value Investor Donald Yacktman's Top 5 Dividend Picks