These dividend-paying companies may offer good value
Summary
- Ketterer factors dividends into her investment process.
- Some of the highest-yielding stocks in her portfolio include TORM, Gerdau, Golden Ocean, British American Tobacco and United Microelectronics.
Investing in companies that pay dividends while prices are down is one way investors can hedge their portfolios against inflation and other headwinds. While there is always a risk of the dividend being cut, historically, dividend-paying companies have been found to be less erratic in choppy market conditions and continue to provide a better overall return compared to stocks that do not distribute dividends to investors.
One guru that incorporates dividends into her strategy is Sarah Ketterer (Trades, Portfolio), the head of Causeway Capital Management.
Seeking to post superior risk-adjusted returns, the guru’s Los Angeles-based firm, which she founded with Harry Hartford in 2001, invests in mispriced equities in both developed and emerging markets. The investment team looks for potential opportunities among mid- and large-cap companies using quantitative and value-oriented methods. Each stock also receives a risk score based on the amount of volatility it adds to the portfolio. The team then enters positions in the stocks with the highest expected risk-adjusted returns that also have a lower price-earnings ratio and higher dividend yield than the market.
As such, GuruFocus data shows Ketterer has a number of stocks in her 13F equity portfolio for the second quarter that have high dividend yields, including TORM PLC (TRMD, Financial), Gerdau SA (GGB, Financial), Golden Ocean Group Ltd. (GOGL, Financial), British American Tobacco PLC (BTI, Financial) and United Microelectronics Corp. (UMC, Financial).
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
TORM
With a yield of 24.83% and payout ratio of 0.65, TORM (TRMD, Financial) tops the list. Ketterer held 136,465 shares as of the end of the second quarter, accounting for 0.09% of the equity portfolio.
The U.K.-based shipping company has a $2.40 billion market cap; its shares were trading around $28.07 on Wednesday with a price-earnings ratio of 3.02, a price-book ratio of 1.57 and a price-sales ratio of 1.43.
The GF Value Line
VALU
At 76 out of 100, the GF Score indicates the company is likely to have average performance going forward. It received high ratings for profitability and growth, middling marks for financial strength and momentum and a low value rank.
Gerdau
Gerdau (GGB, Financial) has the second-largest yield at 12.57%. The payout ratio is 0.65. As of the second quarter, the guru held 7.73 million shares, which occupy 1.06% of the equity portfolio.
The Brazilian steel manufacturer has a market cap of $8.44 billion; its shares traded around $4.83 on Wednesday with a price-earnings ratio of 4.76, a price-book ratio of 0.87 and a price-sales ratio of 0.58.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 90 implies the company has good outperformance potential on the back of high ratings for all five criteria.
Golden Ocean Group
Sporting a payout ratio of 1.26 and yielding 9.46% is Golden Ocean (GOGL, Financial). The investor entered a 505,904-share position in the stock during the second quarter, allocating 0.10% of the equity portfolio to it.
The Norwegian dry bulk shipping company has a $1.58 billion market cap; its shares were trading around $7.91 on Wednesday with a price-earnings ratio of 7.98, a price-book ratio of 0.84 and a price-sales ratio of 1.71.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The GF Score of 76 means the company is likely to have average future performance, driven by high growth and profitability ratings, moderate financial strength and momentum ranks and a low value result.
British American Tobacco
Offering an 8.59% dividend yield and a payout ratio of 0.44 is British American Tobacco (BTI, Financial). Ketterer owns 325,080 shares, which make up 0.28% of the equity portfolio.
The tobacco company headquartered in London has a market cap of $71.08 billion; its shares traded around $31.78 on Wednesday with a price-earnings ratio of 6.63, a price-book ratio of 0.81 and a price-sales ratio of 2.10.
The GF Value Line suggests the stock is modestly undervalued currently.
Supported by a high profitability rating, middling marks for growth, financial strength and value and a low momentum rank, the company has a GF Score of 72. This means it is likely to have average performance in the future.
United Microelectronics
United Microelectronics (UMC, Financial) generates an 8.52% dividend yield and a payout ratio of 0.57. The guru has a position of 220,778 shares, which represent 0.05% of the equity portfolio.
The Taiwanese semiconductor manufacturer has a $17.28 billion market cap; its shares were trading around $6.91 on Wednesday with a price-earnings ratio of 6.61, a price-book ratio of 1.70 and a price-sales ratio of 2.15.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 91 indicates the company has high outperformance potential. While it received solid ratings for four of the criteria, the value rank is more moderate.
Other high-yield picks
Additional high-yield stocks in Ketterer’s portfolio as of June 30 included Himax Technologies Inc. (HIMX, Financial), Chesapeake Energy
CHK
CFG
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
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