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How to Get an 8.4% Portfolio with the Help of Buffett, Tepper, Pabrai, Marks and Einhorn

November 17, 2011 | About:
Federico Flom

Federico Flom

6 followers
At times like this, dividends are king. Stocks paying a high yield will hold up better as the market goes south. In this article I picked the highest yielding stocks from the portfolio of Warren Buffett, David Tepper, Mohnish Pabrai, Howard Marks and David Einhorn. By this way I created a portfolio of 5 stocks selected from superb Value Investors.

Stocks paying a high dividend aren't a perfect investment. Nothing ever is. If the stock market goes down hard, these stocks will suffer, too, although an investor will still collect that dividend while waiting for the stock to recover. If the stock market soars, these stocks won't climb as fast as pure growth or momentum stocks. But they offer a great investment vehicle for a long term holding investor if the company has a stable business model and has a history of solid dividends.

I created a portfolio that yields 8.4% investing in equal weight in each of the top-yielding stocks from five superb-value Gurus.

GlaxoSmithKline PLC ADS (GSK) – Warren Buffett Top Yield stock: 5% Yield

Warren bought this stock in 2007 for a price above what the stock is trading now. London based GSK is one of the world's leading pharmaceutical companies. In its fiscal third quarter, profits were fundamentally unchanged from the year earlier. While important drugs lose patent protection in the next 18 months, the R&D pipeline, along with $9 billion in cash on hand, are adequate to restore growth. In the meantime, GSK's dividend itself is enough to support the stock price, even without impressive growth.

GSK has a low beta of 0.67, and rarely surprises anyone in its quarterly earnings. GSK has large portfolio of patent-protected drugs, vaccines and biopharmaceuticals covering multiple major therapeutic areas that it sells worldwide. Pharmaceutical sales make up approximately 80% of revenues, while the smaller consumer healthcare division accounts for 20% of revenues.

GSK currently has a dividend yield of approximately 5% and a modest payout ratio of 54.5%. While GSK might seem a bit expensive with a P/E of over 16, it is trading cheaper by other more robust measures. GSK has an EBIT yield of 13% and a price to free cash flow ratio of 10.4.

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Calumet Specialty Products Partners L.P. (CLMT) – David Tepper Top Yield stock: 10.4% Yield

Calumet Specialty Products Partners is a leading refiner and processor of specialty hydrocarbon products. Operating six plants including operations in Northwest Louisiana, Pennsylvania, Texas and Illinois, Calumet's capacity has grown notably in the last decade. Its people are committed to the constant improvement of its products and optimization of its technologies. Calumet’s product lines include a full line of naphthenic and paraffinic oils, aliphatic solvents, white mineral oils, petroleum waxes, petrolatum and hydrocarbon gels. Calumet has the most diverse specialty hydrocarbon capability in the world.

Tepper started buying the stock in the second quarter and continued buying in the last reported quarter. Calumet reported a historic record quarterly adjusted EBIDTA of over $70 million. CLMT also had a record quarterly distributable cash flow of $50.5 million. Management noted improvements in both Specialty Products and Fuel Products segments, and they continue to focus on strong operations to meet demand for specialty products segment and to better benefit from the current fuel products crack spread.

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Brookfield Infrastructure Partners (BIP) – Mohnish Pabrai Top Yield stock: 5.4% Yield

Pabrai bought this stock in the last quarter of 2010 and maintained the position. BIP operates in utilities, transport and energy, and timber sectors. The company looks decently priced at a trailing 6.6x P/E, 18x forward P/E, 1.1x P/B, and very nice and rising 5.4% dividend yield. Pabrai is a buyer for the great yield alone, the inflation-linked assets and free international exposure. Please note that this stock has special tax ramifications as it is a partnership and based out of the U.S.

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Southern Copper Corp. (SCCO) – Howard Marks Top Yield stock: 8% Yield

Howard added this emerging markets commodities giant in the recent quarter. He saw the shares undervalued in the low $30s range. Southern Copper Corporation engages in mining, exploring, smelting and refining copper ores in Peru, Mexico and Chile. It is involved in the production of copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver and copper.

SCCO has navigated the global recovery well as a mining company, and in our view has plenty of steam left to keep on charging ahead. The firm so far has been able to generate top-line growth with quarterly revenue growth (year over year) numbers in excess of 30%. Bottom line growth was no disappointment either, as quarterly earnings growth (year over year) was over 20%. Even with explosive top and bottom-line growth like this, the firm also manages to offer a dividend yielding over 8%. In addition, the firm is flush with cash. The cash ratio (Cash/CL) alone for SCCO is almost two. With numbers like this, it's tough not to recognize the potential this firm offers even with the risks involved.

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Fifth Street Finance Corp. (FSC) – David Einhorn Top Yield stock: 12.9% Yield

Einhorn bought this stock in 2008 with an average price very similar to the current one. Fifth Street Finance Corp. is a business development company that pays out its earnings in a similar fashion to REITs. FSC lends to private equity firms and medium sized businesses. Their financing deals consist of bridge loans and expansion projects. Unlike larger corporations, smaller companies lack access to investment banking services. Instead, they use FSC as an alternative method of financing. Fifth Street should benefit from the drying up of lending from commericial banks because it gives the company a better bargaining position for the terms of their loans. Low interest rates are also a strong headwind for Fifth Street because income investors will need to add on risk for needed yields.

Fifth Street's financial condition is stable and will be able to sustain its high dividend payments. The company has no long term debt and is trading at only 89% of its book value. Fifth Street is also highly profitable with a 55% profit margin. However, the underlying risk for Fifth Street is the company's procyclical business model. BDCs were one of the worst performing sectors during the 2008 crash due to the small businesses they financed falling into liquidity traps.

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Rating: 3.8/5 (25 votes)

Comments

batman
Batman - 3 years ago
You may want to add Seth Klarman in the mix to add PDL Biopharma(PDLI) at $5.99 which makes the dividend yield of $.60(10.2%). The FCF/EV yield is roughly 13.65%.

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