For those who like Berkshire but want a dividend, many unkind wordshave been said over the years. (I think they are both reasonablegoals, just not from the same security). So, herewith an alternative.Why not just buy a bunch of the stocks that Berkshire owns which happento be paying good dividends right now? The stock picks of Mr Buffettand Mr Simpson et al are not perfect, but I think simply stealing theirpicks works considerably better than a dart board at finding good solid firms.I thought a 4%/year current dividend yield would be a nice target.I took all the big Berkshire holdings which are currently yielding over 3%,and reweighted them so you have more of the higher yielders, and thenfiddled it a bit to cap the largest holdings, and to force GE and WFC into the list.Ticker Yield Weighting PriceMTB 6.30% 7.50% 44.44COP 4.64% 6.25% 40.52ETN 4.61% 6.19% 43.37KFT 4.59% 6.15% 25.25GSK 4.59% 6.14% 35.70GCI 4.52% 6.00% 3.54SNY 4.39% 5.75% 32.78HD 3.86% 4.72% 23.30UPS 3.83% 4.65% 47.02NSC 3.73% 4.47% 36.45CEG 3.66% 4.34% 26.26JNJ 3.52% 4.10% 55.64IR 3.50% 4.05% 20.59PG 3.48% 4.02% 50.62GE 3.46% 7.50% 11.57KO 3.41% 3.89% 48.16PKX 3.20% 3.54% 78.65TSCO.L 3.16% 3.48% 356.14 (UK pence)AXP 3.08% 3.34% 23.34WFC 0.88% 3.92% 22.80 _______ 100.00%This portfolio has a total yield of 4.00% right now. It's a nice round 20 stocks, no single stock accounts for more than 7.5% of the portfolio, and the biggest holding is less than twice the size of the smallest.As for that 4%....I think there is a good chance that Wells and GE may reinstate their dividends, at or close to the old rates. If they merely raise themhalf way to the old levels, the yield on this portfolio would rise to 4.37%.That's why WFC is in the list even though the yield is low right now---if they reinstate the dividend, as I expect them to do within a coupleof years, the old dividend on the current price is a yield of 5.96%.As for GE, I think there is a small chance it will blow up and a hugechance it will prosper immensely. The joys of leverage!If they prosper, the price and the dividend will both rise a lot.Counteracting this yield up-side is the fact I expect broad US dividendsmay fall for a few years and may stay lower for quite a while, though probably not much worse than 1/3 lower than they are now.Since this is a broad portfolio, I would be prepared for cuts inthe yield along the same lines, perhaps as low as 2.5% for a while.This is a high quality crowd, so I expect the dividend cuts to bemore mild than for the average company, meaning that's a worst case.Here are some of my recent thoughts on broad-market US dividends---http://boards.fool.com/Message.asp?mid=27684817Bottom line, this is a bunch of good firms giving a good yield, and I think they make a fairly safe and sensible long run equity portfolio.It's probably good for a very long hold. I would not rebalance it,since the long run prospects of some of the firms (like Wells) arehugely better than for some of the others (like Gannett). So, it'sbest to let the winners run and run in this case, letting the reallygreat firms eventually come to dominate the portfolio even if some things are temporarily overvalued and over-represented occasionally.Jim
Ticker Yield Weighting PriceMTB 6.30% 7.50% 44.44COP 4.64% 6.25% 40.52ETN 4.61% 6.19% 43.37KFT 4.59% 6.15% 25.25GSK 4.59% 6.14% 35.70GCI 4.52% 6.00% 3.54SNY 4.39% 5.75% 32.78HD 3.86% 4.72% 23.30UPS 3.83% 4.65% 47.02NSC 3.73% 4.47% 36.45CEG 3.66% 4.34% 26.26JNJ 3.52% 4.10% 55.64IR 3.50% 4.05% 20.59PG 3.48% 4.02% 50.62GE 3.46% 7.50% 11.57KO 3.41% 3.89% 48.16PKX 3.20% 3.54% 78.65TSCO.L 3.16% 3.48% 356.14 (UK pence)AXP 3.08% 3.34% 23.34WFC 0.88% 3.92% 22.80 _______ 100.00%
There are people who pay a lot of money for a healthy serving like this!Thanks, Mungo!
Nice work Jim, as always.Did you calculate the odds of this portfolio quieting a certain CFA?Joe
Jim,Your dividend effort is very thorough, thanks.:^)janp.s. Do you think one can assume that the dividends that WEB is getting for us in the GS, GE (etc.) deals have a rule that forbids the company from reducing the dividend rate unless WEB concurs?
Did you calculate the odds of this portfolio quieting a certain CFA?Golly gee, I would never want to quiet anyone!"Be nice to the people, beat the ideas to within an inch of their lives"Jim
There are people who pay a lot of money for a healthy serving like this!I'm sure am glad you didn't call it investment advice.That would be illegal, of course. It's just an observation!If it were advice, I'd skip the Gannett and put in a lot more Wells Fargo!Here's my bravely aggressive back-of-the-envelope for Wells:Normalized EPS this year about $4.70 (cyclically adjusted $40bn pretax pre-provision earnings, cyclically normalized provisions of 15% of income, tax rate 38%, giving aggregate net normalized earnings of $21.8bn, and a cyclically adjusted P/E today of 4.80)EPS in ten years about $12.00 (9.9%/year growth, quite aggressive)Typical P/E in the few years around 10 years from now around 12.5Dividend yield in the next decade average around 2.5%Price today $22.51The assumptions above project a total return in the next decade of 23.4%/year compounded (20.9%/year on price rise and 2.5%/year dividend).Jim
FWIW, it looks like CEG is no longer a holding, WEB sold out gradually over the last few months after the deal fell through...
FWIW, it looks like CEG is no longer a holding, WEB sold out gradually over the last few months after the deal fell through...Interesting, I hadn't seen that.Of course, they don't have to wait for any price rise to make a killingon this one because of the breakup fee. I rather thought they'd keepit, but it's not as if my opinion counts for much.As you say, neither Berkshire nor Midamerican owns any shares of CEG now.Incidentally, they sold at $27.25, around $2 higher than now.Jim
<<Why not just buy a bunch of the stocks that Berkshire owns which happento be paying good dividends right now?>>Whether one is looking for dividends or capital gains, the problem with this piggy-back approach is that the crown jewels of Berkshire are the wholly-owned subs...not the security investments.
Why not just buy a bunch of the stocks that Berkshire owns which happento be paying good dividends right now?...Whether one is looking for dividends or capital gains, the problem with this piggy-back approach is that the crown jewels of Berkshire are the wholly-owned subs...not the security investments.I'd agree with that. I'd place the insurance ops at the top of the list.But FWIW, my suggestion was purely based on the starting assumption that someonewants dividends and a quick way to get a better-than-average portfolioof dividends, not that you wanted to own the best pieces of Berkshire.Berkshire itself is a much better buy than the dividend portfolio I suggest.And, as you note, it's the only way to get the subsidiaries!But if you want dividends, you want them to be as sustainable as possiblefrom well-rum firms with good long run prospects. The presence of a stock in Berkshire's portfolio is no guarantee, but I think itimproves your odds a fair bit above the randomly selected dividend payer.For someone not well versed in valuing companies, it's a great "cheat".Jim
Sanofi Aventis would be a good addition to the list. It's dividend yield on the French listed shares is 5.4% ( The ADR shows a lower yield and can fluctuate with EUR-USD exchange rates). It fell over 7% Friday on concern over blockbuster diabetes drug Lantus.The ADR, SNY is trading around $28. Buffett last bought SNY in 08Q4 when it was trading between $25-$33. The bulk of the purchases were in 07Q2 when it was between $41-$48.I was curious why Buffett picked SNY and not one of the other global pharma majors. He had long ago stated that he thought pharmas could be good investemnts due to high ROE, moat etc, but he couldn't figure out which would be winners, so investing in a basket may be the best way to invest. Unfortunately this was not one the questions asked in the AGM Q&A.
There IS NO SAFE Stock!This week's Sanofi-Aventis news:http://blogs.wsj.com/health/2009/06/26/study-sanofis-lantus-...
"Dogs of Berkshire Hathaway"Excerpted from http://www.gurufocus.com/news.php?id=59437-------------------------------In practice, buying five Dogs of the Dow at the beginning of the yield has yielded impressive results. According to [url=http://www.investopedia.com/university/stockpicking/stockpic... ]Investopedia From 1957 to 2003, the Dogs outperformed the Dow by about 3%, averaging a return rate of 14.3% annually whereas the Dows averaged 11%. The performance between 1973 and 1996 was even more impressive, as the Dogs returned 20.3% annually, whereas the Dows averaged 15.8%. Website www.dogsofthedow.com tracks the dogs of the Dow each year, and according to the website, the investment results for the dogs of the Dow in recent years are mixed.Here are the “Dogs” of Berkshire Hathaway, as chosen from the 41 stocks they own as of 1Q09: M&T Bank Corp. (MTB), GlaxoSmithKline plc (GSK), ConocoPhillips (COP), Kraft Foods Inc. (KFT), and Eaton Corp. (ETN)M&T Bank Corp. (MTB) -- Yield 5.5%M&T Bank Corp is a bank holding company. They have two primary bank subsidiaries: Manufacturers and Traders Trust Company and M&T Bank National Association. The banks collectively offer a wide range of commercial banking trust and investment services to their customers. M&T Bank Corp. has a market cap of $5.71 billion; its shares were traded at around $51.35 with a P/E ratio of 13.1 and P/S ratio of 1.4. The dividend yield of M&T Bank Corp. stocks is 5.5%. M&T Bank Corp. had an annual average earning growth of 10.2% over the past 10 years. GuruFocus rated M&T Bank Corp. the business predictability rank of 4-star.Warren Buffett held around 6.7 million for Berkshire Hathaway portfolio MTB since before year 2000.GlaxoSmithKline plc (GSK) – Yield 5.3%GlaxoSmithKline is one of the world's leading research based pharmaceutical and healthcare companies. GlaxoSmithKline plc has a market cap of $91.99 billion; its shares were traded at around $35.47 with a P/E ratio of 9.9 and P/S ratio of 2.1. The dividend yield of GlaxoSmithKline plc stocks is 5.3%. GlaxoSmithKline plc had an annual average earning growth of 8.4% over the past 10 years. GuruFocus rated GlaxoSmithKline plc the business predictability rank of 3-star.GSK has been in the portfolio of Berkshire since 1Q08.ConocoPhillips (COP) -- Yield 4.5%ConocoPhillips is a major international integrated energy company with operations in some 49 countries. ConocoPhillips has a market cap of $62.54 billion; its shares were traded at around $42.21 with a P/E ratio of 4.8 and P/S ratio of 0.3. The dividend yield of ConocoPhillips stocks is 4.5%. ConocoPhillips had an annual average earning growth of 19% over the past 10 years.Warren Buffett initiated a 16 million share position in COP in 1Q06. He owned as much as 84 million shares of COP by 3Q08, but has been seen selling since then. He owns 71 million shares as of 1Q09.Kraft Foods Inc. (KFT) -- Yield 4.5%Kraft Foods Inc. is the largest branded food and beverage company headquartered in the U.S. and the second largest in the world, Kraft Foods Inc. has a market cap of $37.67 billion; its shares were traded at around $25.58 with a P/E ratio of 13.5 and P/S ratio of 0.9. The dividend yield of Kraft Foods Inc. stocks is 4.5%.Warren Buffett started with a 69.5 million shares position in 2Q07, he built his position to 138 million shares by 1Q08 and stayed there since.Eaton Corp. (ETN) -- Yield 4.4%Eaton Corporation is a global diversified industrial manufacturer. Eaton is one of the leaders in fluid power systems electrical power quality and controls automotive air management and fuel economy and intelligent truck components for fuel economy and safety. Eaton Corp. has a market cap of $7.55 billion; its shares were traded at around $45.62 with a P/E ratio of 9.3 and P/S ratio of 0.5. The dividend yield of Eaton Corp. stocks is 4.4%. Eaton Corp. had an annual average earning growth of 7.4% over the past 10 yearsWarren Buffett has 3.2 million shares of ETN in Berkshire Hathaway as of 1Q09. He held the stock since 3Q08.
This is a very well done portfolio that Jim put together on June 22nd for those that wanted a dividend. Thanks.
Just a follow-up on an old post.Why not just buy a bunch of the stocks that Berkshire owns which happen to be paying good dividends right now? ...It has been 10.4 years since I posted that possible dividend portfolio.Total return something about 9.6%, underperforming the S&P total return by something like 4.4%/year.That's the return you'd have had reinvesting the dividends, which presumably would not have been the point of an income portfolio.Definitely some bad duds in there. Santander, Tesco, and Posco were worst.Oddly, GE didn't do too badly, as it was very cheap back then.It's now presumably worth less but more fairly valued, so it cancels out: the price is up a bit. Rescued by a margin of safety at entry date, I guess....but also some things that worked out well, so overall it met its dividend income goal reasonably well.Initial dividend yield was 4.0%.That dividend income has increased at a rate of 5.73%/year, nicely outpacing inflation, so the yield is now 6.89% on the original money put up.The current yield is only 2.66% of the current value of the portfolio, as the prices have gone up. (yield on SPY right now is about 1.81%).If what one wanted was steady and rising income with a safe-ish and moderately rising portfolio value, I suppose it worked.The figures are a little bit iffy around the edges, as it's sometimes hard to figure out how to treat each spin-off or merger.Or hard to get the data from before one of those events.One would have done better with SPY and selling a few shares from time to time, but that was not predictable: it's very expensive right now, meaning the rear view mirror looks great but the windshield looks drear.One would also have done better with BRK and selling a few shares from time to time, without the pricing risk of SPY. Total return has been 14.0%/year.But if the goal was 4%+ dividends, it had to start with dividend payers, so neither of those met the goal.Jim
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |