Dividend Picks For The Long Term Investor

I was able to catch the Bill Nygren interview last week on CNBC and I thought it was very interesting.

Mr. Nygren manages the Oakmark fund which has $8B under management and a 4 star Morningstar rating. He has a well established reputation as a successful long term investor. With is track record and $8B under management I like hearing what he has to say.

You can watch the interview here.

Nygren focuses on what companies will be worth in 5 years and then looks for what is offering the best value today. Most dividend and value investors can identify directly with this approach. A dividend investor can’t look too much further out than 5 years because the global economy is always changing. We can’t expect that everything we invest in today will still be a good investment 5 years from now.

Nygren identified the Financial sector as being the most undervalued right now. Even though those stocks have had a good run they are coming out of historical lows and still have more room to run.

The idea is that these companies will continue to grow profits and return almost all of those profits to shareholders through dividends and buybacks. The buybacks will reduce the number of shares outstanding and help improve EPS.

4 Financial Stocks Nygren Likes:

  • Bank Of America (BAC) – Barely paying a dividend but its expected to grow. It has a P/E of 40 but a 1yr forward P/E of 10 because of expected EPS growth.
  • JP Morgan Chase (JPM) – Probably the best of breed amoung the banks but that could be priced in. Currently yielding 2.8% with a P/E under 10.
  • Capital One (COF) – Currently yielding 1.9% with a P/E under 12
  • American International Group (AIG) – Too big to fail and hasn’t paid a dividend since 2008. EPS is at 1.5 which should allow them to re initiate the dividend soon.

Tech Stocks Nygren Likes

  • Intel (INTC) – It could it still be cheap after the run its had this year with a P/E of 12.5 and a yield of 3.7%.
  • Texas Instraments (TXN) – Has a big P/E of 22 but is growing EPS quickly and currently yields 3.2%.
  • Oracle (ORCL) – Barely worth mentioning with its silly dividend yield of .7% and 12% payout ratio.



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