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Seeking High-Quality Dividend Payers, John Burbank Buys LVS, Consol Energy, BHP Billiton, Monsanto
Posted by: Holly LaFon (IP Logged)
Date: November 16, 2012 09:13PM
John Burbank manages Passport Capital, a global investment firm he founded in 2000 whose assets have reached $3.3 billion. Passport’s investment process combines macroeconomic analysis with fundamental research, and has produced an annualized 23 percent return.
Burbank is bullish on emerging markets and particularly Saudi Arabia. As of at least mid-year, he has 11 percent of his funds allocated in the country.
Burbank encapsulates his perspective on the economic and investing environment and intimates his focus on dividends in his quote from an October interview with CNBC:
“So my view is that after '08, all that government spending and central bank liquidity tried to push things back together and push everything up higher. And for '09 and 2010 and the first half of '11, everything traded in line together. Germany traded like Spain. And then I think the second time around for Europe, last year things started separating. The most dividend-paying stocks, the S&P, I think, were up 1,000 basis points over the least dividend paying stocks. I think you're seeing a separation now and a recognition that we're not going to have the growth that we thought. So I actually think -- I call it the great separation. I think what's happening is that the really high-quality, well-managed, well-governed, dividend-paying companies are going to be treated as an asset class that's priced off of these other available yield instruments while speculative companies, things that, you know, really need the economy to do well, things that aren't that well managed, that don't pay dividends, et cetera, are going to stay poor. So I think -- so basically would be long high quality, leading companies which generally in the United States and then short speculative companies which obviously rise into fed announcements...”
In the third quarter, Burbank bought 83 new stocks for his $2.19 billion portfolio of 168 stocks in total, a 25% quarter-over-quarter turnover. Another highlight of his third quarter activity was his doubling of his weighting in basic materials to 42.9% of his portfolio, from 21.2% in the second quarter.
The largest of Burbank’s new third quarter buys include: Las Vegas Sands Corp. (LVS), Consol Energy Inc. (CNX), BHP Billiton Ltd. (BHP) and Monsanto Company (MON).
Las Vegas Sands Corp. (LVS)
John Burbank bought 1,173,200 shares of Law Vegas Sands for $41.50 per share on average. He had traded the stock from the first quarter of 2011 to the second quarter of 2012, when he sold out for $51 per share on average.
Las Vegas Sands, the developer of destination properties with premium amenities, has a 10.1% revenue growth rate, 11.6% annual EBITDA growth rate and 17.2% annual book value growth, over the past five years.
The company had negative free cash flow for the past nine years, which turned positive to $1.16 billion in 2011, and is at $1.76 billion for the past 12 months ended June 30.
After reporting record financial results for the fourth quarter and full year 2011, LVS declared an annual dividend of $1 per share, paid quarterly beginning on March 30, 2011.
LVS’s P/E ratio of 20.1 is currently close to a two-year low. Its P/B is 3.5 and P/S is 3.8.
Consol Energy Inc. (CNX)
For his second-largest purchase, Burbank acquired 947,300 shares of Consol Energy for $31 per share on average.
Consol Energy, a Pittsburgh-based coal and natural gas producer, has a 5.6% revenue growth rate, 12.7% EBITDA growth rate and 23.3% book value growth rate, over the past five years.
In 2011 it produced $893 million in free cash, up from $37.13 million in 2010. It also has $1.1 billion in cash and $7.4 billion in long-term liabilities and debt on its balance sheet.
Consol Energy’s annual dividend held at $0.40 per share from 2008 to 2010, increased to $0.43 in 2011, and increased to $0.52 in the trailing 12 months.
GuruFocus gives Consol three severe warning signs: an Altman Z-score of 1.45 indicating distress, cash flow from operations severely divergent from the reported net income and asset growth faster than revenue growth. Two good signs are operating margin expansion and a P/E ratio, at 23.7, close to a three-year low. Its P/B ratio is 2 and P/S ratio is 1.2.
BHP Billiton Ltd. (BHP)
Burbank bought 307,900 shares of BHP Hilton for $67 per share on average. He owned the stock in 2010 and sold out in 2011 at an average price of $95.
BHP Billiton, a leading global natural resources company, has a 21.6% annual revenue growth rate, 23.3% annual EBITDA growth rate and 31.8% book value growth rate, over the past five years.
The company has produced free cash flow annually since 2004, including $6 billion in 2012, from $19 billion in 2010. It also has $9.5 billion in cash and $40 billion in long-term liabilities and debt on its balance sheet.
BHP Billiton has a dividend yield of 3.2%. It increased its dividend 11% in fiscal year 2012, giving the dividend a compound annual growth rate of 26% over the last 10 years.
The company has a P/E of 11.93, P/B of 1.7 and P/S of 1.6.
Monsanto Company (MON)
Burbank purchased 207,500 shares of Monsanto Company for $87 per share. From 2010 to the first quarter of 2012, Burbank bought Monsanto shares for between approximately $55 to $60 per share, and sold for between approximately $71 to $80 per share.
Monsanto Company, an agricultural company that aims to “help farmers get more out of each seed,” has a 7.4% revenue growth rate, 6.6% EBITDA growth rate, 8.2% free cash flow growth rate and 9.7% book value growth rate, annually for the past five years.
Monsanto has $6.1 billion in cash and $4 billion in long-term liabilities and debt on its balance sheet.
In August, Monsanto raised its dividend 25% to $0.375 per share.
"Our strong cash flow position gives us the opportunity to prioritize the value we can return to shareowners," said Pierre Courduroux, senior vice president and chief financial officer for Monsanto. "The increase in our quarterly dividend underscores this commitment to the shareowners of our company and supports our objective of maximizing shareowner value."
GuruFocus perceives four good signs in Monsanto’s fundamentals: strong financial strength, a high Piotroski F-Score, consistent per-share revenue growth, and a P/B ratio close to a two-year low. Four medium warning signs also manifest: a share-price close to a three-year high, P/E ratio close to a 10-year high and P/S ratio close to a three-year high.
See John Burbank's other new buys, sells, additions and reductions in his portfolio here. Also check out his undervalued stocks, top growth companies and high yield stocks of John Burbank.
Guru Discussed: John Burbank: Current Portfolio, Stock Picks
Stocks Discussed: LVS, CNX, BHP, MON,