Thu, 27 Jun 2013
Tweedy, Browne manager John Spears touches on his team's process in finding yield opportunities, and also his appreciation for Wells Fargo.
Dan Culloton: Where should investors look around the globe for the best dividend equity opportunities? Here with me to discuss this is John Spears of Tweedy, Browne.
Thank you, John, for being here.
John Spears: Thanks for the opportunity, Dan. Good to be here.
Culloton: John, one of the funds you manage at Tweedy, Browne is the Worldwide High Dividend Yield fund, and you have the opportunity to look across the globe for reasonably valued dividend-paying stocks. Given the fact that dividend-paying stocks have had a very good run, at least in the United States, during the past five years, where are you seeing the best opportunities right now?
Spears: I'd say we're seeing them all over the place because that's how we invest. We invest just brick by brick, one opportunity at a time. In some instances it may take a month to study a company. So we've recently been purchasing some banks in Asia. We've been purchasing some large oil companies at very low price/earnings ratios and very high dividend yields. But we never know exactly where the next opportunity is coming. We're screening for ideas. We have nine analysts working on finding things.
Culloton: It seems that some areas that have been popular with the fund in recent years, such as consumer staples, utilities, telecommunications, are areas that have been coming down. Is it fair to say you've been trimming and taking profits in those areas?
Spears: In certain instances, yes. Some of those stocks have reached intrinsic value or our estimates of value, in some cases exceeding those estimates. So we have been trimming. There is a stock, Arca Continental, which is a large Coca-Cola bottler. We bought in 2008 at about 6.5 times earnings and an 8.5% dividend yield. Everything was going down, and now it's over 20 times earnings. So we've been letting a little bit of that go.
Culloton: Are there areas where you find that dividend-paying stocks have run ahead of themselves, and the valuations have gotten rich and full and you're staying away from?
Spears: I don't know that I can answer that question too well because I'm not focusing on trying to answer the question. I mean, we're focusing on trying to find the things that are cheap and typically have a dividend yield of more than 4% or better these days. So I'm not a student of things that have run up. I am a student of things that have run up within our own portfolio, but not in a general sense where I can respond with any information.
Culloton: Can you talk about Wells Fargo? That looked like a stock that appeared in the portfolio earlier this year.
Spears: Yeah, I don't know that these figures are exact, but roughly buying it around 10 times earnings, so if you and I owned 100% of the company, we would get a 10% aftertax earnings yield, which part of that is paid out to the shareholders. I think the dividend yield is now over 3%, so it's attractive. It's an attractive franchise, one of the highest return-on-capital banks in the United States. It's the Buffett bank. They do a lot of cross-selling. So there are lot of qualitative things that we like about Wells Fargo. It's got growth potential, we think.
Culloton: What should investors expect out of a dividend-focused fund?
Spears: Well, I think all investors want a return above the market's return, and we have no control over that. We'd love to have relative performance all the time year-in, year-out, every quarter. It doesn't work that way. But, I think you should expect a pretty good, absolute return over a long period of time.
Culloton: Thank you very much for your time today, John.
Spears: Well, thank you for having me here, I appreciate it.
Culloton: Thank you.
Spears: Thank you, Dan.