In the pages that follow, we set forth a number of studies, largely from academia, analyzing the importance of dividends, and the association of high dividend yields with attractive investment returns over long measurement periods. You may be familiar with our prior booklet, What Has
Worked In Investing, where we provided an anthology of studies which empirically identified a return advantage for value-oriented investment characteristics. In the same spirit, we attempt to examine what some in our industry have referred to as the “yield effect”; i.e., the correlation of high dividend yields to attractive rates of return over long measurement periods. Much has been written about dividends, and what is contained herein is not meant to be an exhaustive analysis, but rather a sampling of studies examining the impact of dividends on investment returns. We hope it will provide you with added insight and confidence, as it did us, in pursuing a yield-oriented investment strategy.
A copy of the study is at the end of this article.
Tweedy Browne reported the firm’s 3Q10 US listed equity positions. Examining the top positions, one would realize that the firm is walking its talk:
No. 1: PHILIP MORRIS INTERNATIONAL INC (PM), Weightings: 13.25% - 6,543,508 Shares
Philip Morris International is the international tobacco company, with products sold in over 160 countries. Philip Morris International Inc has a market cap of $109.26 billion; its shares were traded at around $59.61 with a P/E ratio of 16 and P/S ratio of 1.8. The dividend yield of Philip Morris International Inc stocks is 4.3%.
No. 2: CocaCola FEMSA S.A.B. de C.V. (KOF), Weightings: 5.83% - 2,063,250 Shares
Coca-Cola Femsa S.A., through its subsidiaries, produces, markets and distributes soft drinks throughout the metropolitan area of Mexico City, in Southeastern Mexico and in metropolitan Buenos Aires, Argentina. Cocacola Femsa S.a.b. De C.v. has a market cap of $14.88 billion; its shares were traded at around $80.6 with a P/E ratio of 19.5 and P/S ratio of 1.9. The dividend yield of Cocacola Femsa S.a.b. De C.v. stocks is 1.4%. Cocacola Femsa S.a.b. De C.v. had an annual average earning growth of 11.2% over the past 10 years. GuruFocus rated Cocacola Femsa S.a.b. De C.v. the business predictability rank of 4-star.
No. 3: Johnson & Johnson (JNJ), Weightings: 5.81% - 2,596,770 Shares
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $176.15 billion; its shares were traded at around $63.95 with a P/E ratio of 13.4 and P/S ratio of 2.9. The dividend yield of Johnson & Johnson stocks is 3.4%. Johnson & Johnson had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.
No. 4: Berkshire Hathaway Inc. (BRK.A), Weightings: 5.5% - 1,222 Shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire Hathaway Inc. has a market cap of $201.92 billion; its shares were traded at around $122600 with a P/E ratio of 23.2 and P/S ratio of 2.2. Berkshire Hathaway Inc. had an annual average earning growth of 3.7% over the past 10 years.
No. 5: ConocoPhillips (COP), Weightings: 5.23% - 2,519,109 Shares
ConocoPhillips is a major international integrated energy company with operations in some 49 countries. Conocophillips has a market cap of $93.76 billion; its shares were traded at around $63.21 with a P/E ratio of 10.9 and P/S ratio of 0.6. The dividend yield of Conocophillips stocks is 3.4%. Conocophillips had an annual average earning growth of 18.2% over the past 10 years.
No. 6: Baxter International Inc. (BAX), Weightings: 5.2% - 3,017,466 Shares
Baxter engages in the worldwide development, manufacture and distribution of a diversified line of products, systems and services used primarily in the health-care field. Baxter International Inc. has a market cap of $30.33 billion; its shares were traded at around $51.9 with a P/E ratio of 13.4 and P/S ratio of 2.4. The dividend yield of Baxter International Inc. stocks is 2.3%. Baxter International Inc. had an annual average earning growth of 7.1% over the past 10 years. GuruFocus rated Baxter International Inc. the business predictability rank of 3.5-star.
Check out the firm’s complete stock portfolio by clicking on Tweedy Browne.