First Pacific’s management partner, Steven Romick, has a clear strategy: to beat the market when stocks are falling and underperform by a smaller margin when they are rising. Romick’s main priority is to limit losses rather than maximize returns.
This 47 year-old investment adviser earned a degree from Northwestern University in Evanston, Ill. and launched his fund at Crescent Management in Los Angeles. Then, he brought it to First Pacific Advisors in 1996 upon CEO Robert Rodriguez’s invitation.
As Morningstar Inc. has pointed out, his picks have worked for investors, with average returns of 11% a year in the decade ended in June 30, better than 99% of the fund rivals.
The lower volatility of his fund is also quite attractive to potential investors and a good reason for current investors to stick with the fund. FPA Crescent has been less volatile than the market benchmark.
Also, Romick has managed to limit losses during the financial crisis by putting half of his assets in cash. According to Bloomberg, his fund lost 21% in 2008 versus a decline of 37% for the S&P 500.
When it comes to stocks, Romick likes and prefers to bet on dividend shares because they represent a conservative way of investing and, in general, on a long-term basis, they have proved to be a better choice. Investors putting their money in this type of shares will profit not only with the capital gain of the stock but also with the dividends received. Also, they are less risky than other types of shares. Why? Thanks to the dividend payments, the investor is risking less money as the money in the investment is reduced, and, at the same time, there is a possibility to profit with the same capital gain.
There are five more reasons to invest in dividend paying stocks:
- According to Standard & Poor’s data, they are beating the market
- They are less risky and a good option for those seeking security
- They provide much better yields and the tax levied on them is lower than that levied on interest on savings or money market accounts
- They help you avoid frauds such as Enron’s. Dividend payments show the truth about the company. If there is a slow increase in the dividends compared to a massive rise in the earnings, as it occurred in the case of Enron, something is not right.
- You may reinvest your dividends improving your portfolio’s long-term returns by buying more shares when price is low.
Now, let’s have a look at five stocks in Romick’s portfolio.
Vodafone (VOD) – This is a mobile communications provider operating in Europe, Africa, the Asia Pacific, the Middle East and the U.S. Recent events related to this company have turned it into a stock you should consider buying. First, it was announced that Vodafone will receive a 2.8 billion pound dividend from Verizon Wireless. Such amount will be used to pay dividends to Vodafone shareholders (2 billion) and to settle Vodafone’s current debt. But the interesting thing is that these dividend payouts from Verizon Wireless will be probably sustained after 2012. Another important event is that VOD was upgraded by analysts at UBS earlier this August when it was trading at $28. Also, even after August 10 % fall, VOD is just 5% away from a long term technical level.
Johnson & Johnson (JNJ) – Despite its recalls problems and plant shutdown, this company still looks good value. For one thing, JNJ’ sales have increased by 16.8T and net profits by 0.08%. Also, the company has launched 8 new drugs, which added to the company’s sales growth and it increased the top-range of its full-year estimates to 5.00/share. With a dividend yield of over 3.5% investors are getting paid to wait.
Unilever (UL) – This consumer goods company is located within the major diversified foods industry. It has a market capitalization of $93.4 billion, generates revenues in an amount of $60.4 billion and a net income of $5.9 billion. Dividend yield: 3.8. Not bad.
Transocean (RIG) – This is one of world’s largest offshore drilling contractors, accounting for approximately half of world’s supply of deepwater drilling rigs. Despite the negative publicity from the Deepwater Horizon accident and other risks connected with it, Transocean still looks good value for one reason: oil. If Global energy demand keeps growing as it has, oil companies like this will keep getting good results. And do not forget a fact: the price of oil also makes it profitable.
Pfizer (PFE) – This well-known company has been representing good value for its shareholders for many years and all measures indicate it should be attractive for investors. Apart from earning a ValueCreation TM of excellent, Pfizer is paying a dividend of 4.4% and is expected to pay out about 35% of next year’s earnings to shareholders as dividends. The company is trading at a discount but the price of shares is expected to converge within the next three years, according to Valuentum forecasts. A good pick too.