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By Dan Culloton | 06-13-2013 10:00 AM

Finding New Dividend Growth in Tech

ClearBridge Equity Income Fund Manager Hersh Cohen on technology dividend-payers and new additions to his fund's portfolio.

Culloton: You mentioned in the late '90s, when dividends were far more out of favor than they have been the last…

Cohen: Right, 25% after-tax payout ratios then; it was pathetic.

Culloton: Right, but yet also on the flipside, there were a lot of stocks leading the market back then that were not paying dividends, that you never thought would pay dividends, that people said, if they ever pay dividends, they would be dead, which are now dividend paying stocks, in terms of Microsofts, the Intels…

Cohen: Ciscos.

Culloton: So technology has been a big area of dividend expansion, the big area of opportunity…

Cohen: New dividend growth, correct.

Culloton: So, can you talk a bit about the technology stocks that you'd find now in your portfolio?

Cohen: Well, those are the ones, and I don't mind mature companies if they are cash-rich and still have some potential for growth. I can't tell you whether Intel ... is going to be a growth stock going forward or not. I think its earnings did not grow particularly during the last decade. But the stock went from 50 and 60 times earnings down to 10 times earnings, with a ton of cash on the balance sheet, and as soon as they started paying a dividend, and a 4% dividend at that, I said I can live with that. I'll take chance. You have a lottery ticket for them doing better. You know what? Intel seems to be adapting … they are going to make some headway in tablets and mobile. So, they'll be all right. I think they'll be all right.

Cisco, they made a lot of dilutive acquisitions, bad acquisitions, things that didn't fit. So now Wall Street wants them to return capital. Hey, that's great. So, shareholders will benefit from that. Is Cisco still a growth company? There is certainly a need for bandwidth and switching, and speed. So, Cisco could still be good, but you're not paying a lot for that, either. That's the great thing. So nobody thinks these stocks are dead, but they went from 60 times earnings and 50 times to 10 times earnings. They got too cheap.

Culloton: You also own Apple in the portfolio.

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