By Aubrey Tabuga
Gateway Investment Advisers is a financial investment advisory firm based in Cincinnati. Data from Whalewisdom.com shows that it is currently managing over $10 billion worth of assets. Gateway is one of the longest-running option hedging portfolios out there. Its hedge equity strategies cater to investors that are risk-conscious. The firm uses broadly diversified equity portfolio while relying on the sale of index call options as a significant source of earnings.
In the third quarter, the fund's portfolio consists of technology (20.75%), services (18.82%), financial (16.58%), healthcare (9.69%), and consumer/noncyclical (8.53%). In this article, I show the firm's top dividend stocks based on yield and consistency in paying dividends. These stocks are Chevron (NYSE:CVX), GE (NYSE:GE), Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), and Exxon Mobil (NYSE:XOM). I also provide a brief history of Gateway's investment activities on these stocks.
Market Value (million)
% of Portfolio
% Change (yoy) Dividend Amount*
General Electric Co.
Johnson & Johnson
Exxon Mobil Corp.
Annualized Dividends Payment
Source: Nasdaq.com; 2012p - may be partial for 2012; as of Nov. 1, 2012
Chevron Corporation engages in the exploration, development, and production of crude oil and natural gas. Its business is also in transportation, storage, marketing, and refining. Its products include petroleum, petrochemicals, and plastics for industrial uses, fuel additives, and lubricant additives. Formerly known as Chevron/Texaco Corporation, Chevron was founded in 1879 and is based in San Ramon, California. The company is headed to tap European market initially through its purchase of the 50% stake in a Lithuanian energy company. It is also reportedly increasing its investments in Colombia to perk up infrastructure in several natural gas fields and new, exploratory wells in the country.
Gateway maintains its position in Chevron Corp. The oil company has been on the fund's top five stocks in the past eight quarters now. It currently comprises 2.06% of Gateway's total portfolio.
CVX has a high dividend yield of 3.24%. The company has a good track record in paying dividends. Likewise, it has not failed to increase the amount for 8 years now. The year-on-year growth of the company's latest payment, $0.90, is quite high at 14.3%. In addition, Chevron's ability to raise its dividends further is shown by a lower payout ratio of 24.49% compared to a historical ratio of 30.07%. The stock's profitability is encouraging with a net profit margin of 10.79%.
General Electric Company
General Electric Co. is a worldwide leader in producing household appliances. It is also known for its products in aircraft engines, industrial commodities, energy infrastructures, transportation, healthcare, and capital. It was founded in 1892 and is headquartered in Fairfield, Connecticut. The company currently has a market capitalization of $222 billion. GE is reportedly collaborating with the Kenyan government and industry for the development of 1,000 megawatts of power in that country. Meanwhile, GE Capital Corp., the financial services unit of GE, has recently enjoyed an increase of market share in the U.S. structured notes market.
Gateway has increased its position in GE by 8% in the third quarter bringing its holdings to 7.954 million, which comprises 1.80% of the fund's total holdings. Gateway has been investing in the Fairfield-based company for many quarters already, maintaining its holdings at around 7 million.
GE's dividend yield is 3.23%. The appliances company has been paying investors increasing dividends since the second quarter of 2009. The latest payment of $0.17 per share is 12.5% higher than that for the previous year. The company has illustrated its ability to raise its dividends through a lower payout ratio of 50.35%; the historical one was at 55.59%. The appliances giant enjoys a profit margin of 9.90%. Its EPS is expected to grow in the next 5 years at an annual rate of 11.15%. GE's EPS next year is expected to be $1.71, higher than the current EPS of $1.35.
Johnson & Johnson
Johnson & Johnson is a world leader in producing healthcare products. It is the producer of prescription drugs Edurant, Xarelto, and Zytiga. It owns the brands Neutrogena, Band-Aid, Listerine, and Tylenol. Its business is segmented into consumer, pharmaceutical, and medical devices and diagnostics. It employs 117,900 employees. The New Jersey-based company was founded in 1886. The most recent drug that JNJ has shown progress in developing is Canagliflozin, a candidate treatment for type II diabetes. If successful, the drug will have a significant commercial value to the company. In the third quarter, JNJ has reportedly exceeded expectations in terms of earnings where it inched up from $1.24 per share a year ago to $1.25.
Gateway has further increased its position in the company by 6% in the third quarter after purchasing about 222,000 shares in the second quarter. At a current level of 2.254 million shares, this is so far the biggest holding that the fund has had in the healthcare company in the last 2 years.
JNJ's current dividend yield is 3.45%. The company has been a great dividend producer since 2001. Its track record of giving rising payments spans for more than a decade already. The latest payment went up by 6.78% from that of the same period last year.
Pfizer Inc. is a leading producer and marketer of biopharmaceutical products. It is behind the brands Lipitor, Viagra, Celebrex, and Norvasc. Aside from pharmaceuticals, PFE also produces livestock and companion animals' drugs. Like JNJ, the New-York based company also manufactures nonprescription products and Nutritionals. Pfizer recently reported its planned acquisition of NextWave Pharmaceuticals Inc., a producer of ADHD drug that is FDA-approved. The drug is expected to hit the pharmacies by the start of next year. The Nextwave deal has been reported to be worth about $700 million.
The fund manager slightly increased its position in the company during the third and second quarter. This is just the second time that it did so within at least nine quarters. Gateway has been selling off its shares in PFE since the 3rd quarter of 2010, the earliest period of data that can be obtained from Whalewisdom.com.
Pfizer is one of Gateway's top dividend stocks with a high yield of 3.54%. It has been paying consistent dividends to its investors for many years now. Payments have been steadily rising except for a momentary slide during the early part of 2009. The latest dividend was up by 9.53% from that of the previous year. The current payout ratio (72.03%) has gone down from its historical level of 80.48%, which indicates the company's greater ability to raise dividend earnings. PFE is expected to enjoy an EPS of $2.33, twice the current EPS [ttm] of $1.15.
Exxon Mobil is an oil and gas exploration and production company. It is based in Irving, Texas and has been operating since 1882. Its products are petroleum and petrochemicals. Exxon operates worldwide and has nearly 32,000 net operated wells as of December 2011. The company, however, has been lagging behind its rivals in discovering new oil sources. In a bid to cope and regain its lead, Exxon is seen as bidding to acquire Anadarko Petroleum (NYSE:APC) or EOG Resources (NYSE:EOG).
Exxon is a consistent leader in Gateway's portfolio. It comprises 3.44% of the fund's total holdings in the third quarter. The fund manager has been increasing its position in XOM for the last two quarters.
Exxon maintains its great record of paying dividends to its investors. Like JNJ, the company is consistent in giving incremental payments every year. The yield is at 2.50%; the latest dividend payment (August) rose by 19.29% compared to that of last year. XOM also shows its ability to raise dividend payments further through a payout ratio of 20.85%, which is lower than the historical ratio at 25.6%. The company has recently announced its next dividend payment for the fourth quarter with an amount that is also 19.29% higher than that for the same period a year ago.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.