By Siraj Sarwar
Tweedy, Browne is one of the largest fund managers in the market. The investment giant offers a unique value strategy that looks for long term growth of capital by investing in mostly high-dividend corporations. Its portfolio is heavily tilted towards high-dividend stocks with relatively low valuations. In this article, I look into Tweedy, Browne's top dividend stocks that constitute a substantial portion of the fund's portfolio.
These stocks are Novartis AG (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), HSBC Holdings (HBC), Total SA (NYSE:TOT) and Roche Holding AG (OTCQX:RHHBY). I briefly explore each stock's dividend track record. I also explained the trading activities of the fund manager with regards to each stock.
% of Portfolio
Johnson & Johnson
Johnson & Johnson
Roche Holding AG
p*: Might be partial for this year
Novartis is an attractive investment, thanks to its substantial dividend, solid financial metrics, and a diversified portfolio of recently-released products. Novartis is well-positioned, with numerous operating programs and an industry leading number of new blockbuster drugs.
As of the end of September, Tweedy, Browne owns 301,666 shares in Novartis. This forms 0.69% of the Tweedy, Browne total portfolio. The 13F filing of the Tweedy, Browne has been demonstrating a decreased holding for 9 consecutive quarters.
Novartis has a high yield of 4.01%. The company has raised its dividends from $0.62 to $2.46 since December 1996. Novartis is an appealing holding for Tweedy, Browne thanks to its margins and huge free cash flows. Novartis has produced gross margin of 68.03% and operating margin of 18.52% at the end of FY2011.
Johnson & Johnson
Johnson & Johnson is rated as the globe's largest and most diversified health-care company. Johnson & Johnson is a global giant with 130,000 employees at more than 250 Johnson & Johnson operating corporations throughout the globe. Johnson & Johnson has been continually raising its dividends for 46 consecutive years.
Johnson & Johnson occupies 11.19% of the portfolio, accounting for 4,329,942 shares. Tweedy, Browne decreased their holdings in Johnson & Johnson by 1% in the recent 13f filing. The company has been a consistent favorite of the Tweedy, Browne for at least in the last 9 quarters. Firm has increased its holdings in the stock from 6.18% to 11.19% in the last nine quarters.
The company stands alone as a leader over the key health-care industries. Johnson & Johnson keeps a diverse revenue base, a solid research pipeline, and remarkable cash-flow generation that together build a wide economic moat.
HSBC has about 7,000 offices in 85 countries. It is amongst the biggest banks in the globe. It operates in Europe, Middle East, Hong Kong, other Asia Pacific, Latin America, and North America. HSBC's commercial banking division accounted for more than 36 percent of pretax income in 2011. Retail banking and wealth management and Global banking and markets accounted for 20 percent and, 32 percent respectively.
Tweedy, Browne initiated holdings in HSBC in the previous quarter. HSBC occupies 0.29% of the portfolio, accounting for 168,643 shares. HSBC Holdings is one of the largest banking and financial services organization in the world. HSBC has a market cap of $172.1 billion; its shares were traded at around $47.49 with P/S ratio of 2.1. The dividend yield stands at 4.26%. HSBC had an annual average earnings growth of 8.9% over the past 10 years.
I see much to appreciate about HSBC. Although the global banks have been humbled by the credit dilemma and evidence of poor operational controls, HSBC stands out among its peers. Its enormous footprint permits the company to offer services to worldwide customers that only a few financial institutions can match.
Total is an integrated energy with gas and oil production of more than 2.3 million barrels of oil equivalent a day. Total is one of the biggest chemicals corporations in the world. Total operates a worldwide refinery footprint with 1.9 million barrels of oil per day.
Total occupies 0.79% of the portfolio, accounting for 419,469 shares. Tweedy, Browne decreased their holdings in Total by 5% in the recent 13f filing. Total has been a consistent favorite of the Tweedy, Browne for the last 4 quarters. The firm has increased its holdings in Total from 0.39% to 0.79% in the recent four quarters.
Total has shown an outstanding improvement of 82 percent in its European refinery margins. The company's stock is trading at appealing valuations, at a forward P/E of 7.2x. Total is paying the top dividend yield of 5.87 percent among its peers. Total has a solid dividend payout ratio of 48 percent in comparison to the industry average of 12 percent.
Roche Holding AG
Tweedy, Browne has cut some of its holdings in the Roche Holding in the third quarter. During the last 3 quarters, the fund manager has been continuously decreasing its holdings in Roche. Nonetheless, Roche still forms a significant 0.11% of the tweedy Browne portfolio.
Roche has exhibited a consistent ability to increase dividends, sometimes in significant amounts. Although the company does not have a steady dividend policy "however", the company has continued to pay dividends for 25 straight years.
Roche documented strong Q3 results. Revenue advanced 8 percent while adjusted net income increased 20 percent from the previous year period, to 3.3 billion Euros. In addition, the company has estimated to earn $3.85 per share in 2013. The yearly dividend represents a payout ratio of less than 50%. At its current rate of annual dividend of $1.55 per share, the company is now yielding 3.8 percent.
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 Siraj Sarwar, 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.