as part of our
I wrote back in August
, it can be helpful at times to look over the shoulders of
successful investors to see what their highest-conviction
investments are. And during times like these, when the
economy is looking wobbly and the potential for a Eurozone meltdown
is hanging over our heads like the sword of Damocles, that extra
insight is all the more valuable.
Today, I'm going to take a look at one high-conviction dividend
stock each from three investors whose skills I respect and whose
track records have withstood the passing of a crisis or two.
The usual caveats apply; I'm basing this analysis on SEC filings
that are reported on a time lag and may already be out of date by
the time they become publicly available. For these reasons, I
will stick with large positions that the investor has held for a
long period of time or new positions that I consider unlikely to
have been sold so quickly.
|International Business Machines
|Johnson & Johnson
|Six Flags Entertainment Corp
Let's start with the granddaddy of modern value
Berkshire Hathaway's ($ BRK-A)
Mr. Buffett made quite a splash last year when he bet big on
International Business Machines (NYSE:$ IBM).
It was his first major purchase in the tech sphere, and it quickly
became one of Berkshire's largest holdings. Buffett added to
his position last quarter, and IBM now accounts for nearly 18% of
The appeal of IBM is straightforward; Buffett was attracted by
the stability of the company's cash flows and its business model as
a high-end service provider whose customers are locked in to
But its qualifications as a "dividend stock" might be a little
more controversial. At current prices, IBM yields only
1.6%. Still, this is roughly in line with the current yield
on the 10-Year Treasury Note, and-importantly-IBM's dividend rises
every year. IBM's dividend rose 13% this year and 15% the
Of course, this is nothing new. IBM is a proud member of the
Dividend Achievers index, an exclusive fraternity of stocks that
have boosted their dividends for a minimum of ten consecutive
So while the current yield of 1.6% is a little uninspiring, it's
safe to assume investors buying IBM today will be enjoying cash
payouts far higher in a couple years' time than they would have had
they opted to invest in bonds.
Next on the list is the "Warren Buffett of Canada,"
Fairfax Financial Holdings (FRFHR)
Chairman Prem Watsa.
Like Buffett, whom Watsa admires, Watsa built his financial
empire around a solid insurance business, which provided him with a
growing float to invest. And like Buffett, Watsa is known for
being a patient investor who often holds his best positions for
5-10 years or even longer.
Watsa's track record speaks for itself. According to research
site GuruForus, Watsa has grown Fairfax's book value by an
astonishing 212% over the past ten years. This compares to total
returns of just 34.9% for the S&P 500. Impressively, he
actually made money in 2008. Fairfax saw its book value rise 21% in
the midst of the worst financial crisis in 100 years.
Diversified health and pharmaceutical company
Johnson & Johnson (NYSE:$ JNJ)
is Watsa's largest holding by far, and accounts for more than 21%
of his listed portfolio.
Johnson & Johnson is an obvious choice for a conservative
dividend stock, and it is a current holding on the
Sizemore Investment Letter's
Drip and Forget Portfolio.
It also happens to be one of the highest-yielding major American
blue chips, with a 3.5% dividend at current prices. And like
IBM, Johnson & Johnson has a long history of raising that
dividend. J&J is a member of the Dividend Achievers
Given the low repute of ratings agencies this matters less than
it used to, but Johnson & Johnson is one of only four American
companies to have its bonds rated AAA. Yes, Johnson &
Johnson is actually considered to be less risky than the U.S.
government, and its stock pays more in yield. This is one you
can buy and lock in a proverbial drawer.
Our final guru today is hedge fund manager and fellow Dallas
resident Kyle Bass, principal of Hayman Advisors. Though he
does trade equities, Bass is a macro investor better known for
making large bets in the credit and currency markets; he made his
investors a small fortune betting against subprime mortgage
securities in the run-up to the 2008 meltdown.
Bass's equity portfolio is completely dominated by
Six Flags Entertainment Corp (NYSE:$ SIX)
, the owner and operator of theme parks. Six Flags makes up
nearly 40% of his equity holdings.
With a current yield of 4.1%, Six Flags certainly qualifies as a
dividend stock. But readers should consider this stock a
riskier bet than IBM or Johnson & Johnson. Theme parks
are sensitive to the state of the economy, and the stock trades at
a nosebleed valuation of 32 times expected 2013 earnings.
There is a lot of optimism built into the price at current
All of this said, Bass has certainly done well by owning Six
Flags-it's up more than 100% over the past year-and he clearly has
a high level of conviction in the stock if he's make it nearly 40%
of his equity portfolio.
Disclosures: Sizemore Capital is long JNJ.