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…
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.
Cohen: We own Apple. We actually bought Apple--I haven't played that like a violin maestro, I have to say. But we did buy Apple in the $300s, because we thought, mistakenly, that Steve Jobs might pay a dividend before we thought there might be a dividend tax increase, and we thought he might pay a special dividend. We were wrong. But the stock went up, and we nipped a little bit off in the high-$600s, and my younger colleague Mike Clarfeld actually tried to get me to sell more, and I kind of got stubborn on it, and I should have known better, because I've seen too many device companies over the years stub their toe and reach saturation. I don't know if Apple has or hasn't. But it's become pretty good value story with lots of yield, and so I think it's pretty good hold.
Culloton: Besides these areas, where else are you seeing good opportunities for dividend-paying stocks--areas where perhaps the P/Es or not as full?
Cohen: Well, we recently, we added Caterpillar this year. We had waited for it to come off. … We actually had owned caterpillar coming out of 2009, owned it and bought it at a 5% yield, and sold it at a 4% yield, and my mistake was not realizing that they would be a really consistent dividend payer. So the stock had a big run and then it backed off, and we bought it in the low and mid-$80s, and I don't know what it's doing today, but they had a big dividend raise. They raised the dividend even in 2008. A little bit of cyclical exposure.
I think we bought Target this year, bought that fairly right. Union Pacific, we had bought some lower and then we added to some. It's not the cheapest stock in the world, but I understand the case for rails. I wish I had owned more of it earlier, but I think it's the best of the bunch.
We started an initial position in American Tower, which is not a particularly cheap stock, but it will be a good dividend-raiser. They build the cell towers, and so there's an enormous need for increased numbers of towers and increased traffic through the towers. They are big in Latin America. The valuation is a little more than I'd like, but the market will eventually catch up to that I think.
Culloton: To what extent can and are you willing to go outside of the U.S. to look for dividend growth?
Cohen: We recently added to Nestle, which has kind of been lagging but that's an international [company], it's like our domestic companies. And we bought Honda, which is an interesting one because I believed in late last year, early January, that Japan's market would do better. I don't know how to play Japan. But Honda seemed like a reasonable idea. I'd been better off buying Ford domestically, I suppose. It's been a better stock.
Honda is a dividend raiser, love their cars, quality cars, good reputation, a great American and Japanese company. The stock struggled up from $36 and a fraction. We bought it to $41 and then gave it all back in the last week with the Japanese market. So we were right in the Japanese market; it's gotten crushed in the last couple of days, the Japanese market. Interestingly enough, with the Japanese market down 6%, Honda was actually up a few pennies today, overnight.
So I have trouble with these companies that are based overseas in terms of … there are factors there that I can't control. So we don't have big representation in those things, nor will we ever. We are mostly about domestically-based companies, and we'll have an occasional ADR or foreign stock, but it's not going to be the major focus of what we do, even though I think they can work. We are going to give Honda some room.
Culloton: Well, thank you very much for your time.
Cohen: Thank you, good, appreciate it.