Finding Value in Dividend-Payers
Loomis Sayles' Warren Koontz on opportunity among dividend stocks, and the attractiveness of banks and large-cap tech companies today.
Warren Koontz is the vice president of Loomis, Sayles, & Co. and the co-portfolio manager of the Loomis Sayles Value Fund (LSGIX). He is a specialist in large-cap value investing strategies. Koontz recently answered our questions on how good value ideas are found with high-dividend payers, the attractiveness of banks, and the fund's approach on foreign stocks.
1. A number of the fund's top holdings are high-dividend payers. Is that by design or simply a result of where you see the values today?
While we like dividend yields, it is not a primary driver of our strategy. It is, however, a reflection of where we are finding good value ideas. Many of our higher-yielding names have been stocks in a sector like health care that have lagged or been punished in the short term, thus creating very good entry points and long-term values. The larger yields may also be a reflection of companies with good cash flow, thus creating the ability to have higher dividend payouts.
2. It's clear you see value in big banks such as J.P. Morgan, Bank of America, Wells Fargo, and PNC. Can you speak to what's attracted you to them?
We believe many bank stocks are selling at attractive discounts to their normalized earnings. Although there are certainly headline worries from Washington, the decent yield-curve environment, coupled with the fact that most banks have paid back their TARP (Troubled Asset Relief Program) funds, should benefit their core businesses. We believe it is too early to make investment decisions on the Obama administration's bank fee proposal and limits to their other businesses.
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