Seth Klarman is one of the world’s most successful and well-regarded value investors. He invests with an eye to the medium to long term (three to five years), and looks for a significant margin of safety on undervalued companies. On a recent interview with Charlie Rose, he quipped that he is still in Warren Buffett’s first stage of investing – looking for “cigar-butts.” Klarman has chosen several high-yielding stocks for his portfolio, some of which account for large percentages of his portfolio. The highest yielding are: PDL BioPharma Inc. (PDLI, Financial), BreitBurn Energy Partners L.P. (BBEP, Financial), Ituran Location and Control Ltd. (ITRN, Financial) and BP PLC ADS (BP, Financial).
PDL BioPharma Inc. (PDLI)
PDL BioPharma Inc. (PDLI) is a biopharmaceutical company focused on the research, development and commercialization of novel therapies for inflammation and autoimmune diseases, acute cardiac conditions and cancer. It pioneered the humanization of monoclonal antibodies, and derives much of its revenues from royalties from its proprietary technology. Royalties revenue has increased each year since 2000, and the company expects it to continue to growth before the expiration of its Queen et al patents in December 2014.
It has the highest yield of any of Klarman’s stocks at 9.6%. He bought the stock in the fourth quarter of 2010 when the stock was at about $5.73 per share, and traded several times since then. Most recently, he added in the third quarter 6,373,675 at about $6 per share, bringing his total holding to 15,636,000 shares. In previous years, the stock traded for $20 to $30 per share. It has declined 73% over the last five years, so he bought it at a low point, as he does with most of his investments.
The company changed its focus in 2008, selling many of its assets. It also began paying a dividend in 2008, at $6.85 per share, including a special cash dividend of $4.25 per share resulting from the sale of several assets. The subsequent two years the dividend was lower. It most recently paid $1 per share in 2010.
The board of directors of PDL adopted a quarterly dividend policy on Feb. 25, 2011, that it would pay $0.15 each quarter for 2011. Its usual process is to meet at the beginning of each year, review the total annual dividend payment for the prior year and determine whether to increase, maintain or decrease the quarterly dividend payments for that year. To make its determination, the board considers the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of credit markets.
BreitBurn Energy Partners L.P. (BBEP)
BreitBurn Energy Partners L.P. is an independent oil and gas limited partnership, recently formed by a subsidiary of Provident Energy Trust, focused on the acquisition, exploitation and development of oil and gas properties. Breitburn Energy Partners L.P. has a market cap of $1.08 billion; its shares were traded at around $17.81 with a P/E ratio of 56.9 and P/S ratio of 3.4.
BreitBurn has a dividend yield of 9.5%. Klarman first bought the stock in the fourth quarter of 2007 at about $30 per share, and bought more as the price went down. He then began selling portions of his holding as the stock went up. He has owned 2.5 million shares since the second quarter of 2011.
The company began paying a dividend since its IPO in the fourth quarter of 2006, at $0.40 per share. It steadily increased the dividend until it ceased payouts for most of 2009 while it paid down debt to increase its liquidity position. It restarted in April 2010, at $0.375 per share. It began raising the dividend again in the following quarters, reaching $0.43 in its most recent payout declared in October 2011.
Breitburn had total reserves of 118.9 million Boe at year-end 2010, with an average reserve life index of greater than 17 years. In total, 91% of its estimated proved reserves were classified as proved and developed.
As of February 28, 2011, the company had total borrowings of $427 million, comprised of $305 million in senior notes and $122 of bank borrowings. It raised approximately $100 million through a common stock offering in 2010 as well, and about $82 million on its balance sheet. In 2009 it generated $195 million in free cash flow, and $113 million in 2010.
It trades for $17.49 per share now — less than book value of $23.53 per share.
Ituran Location and Control Ltd. (ITRN)
Ituran provides location-based services, consisting predominantly of stolen vehicle recovery and tracking services, as well as wireless communications products used in connection with its location-based services and various other applications. Ituran Location And Control Ltd. has a market cap of $301 million; its shares were traded at around $12.73 with a P/E ratio of 10.5 and P/S ratio of 2. Ituran Location And Control Ltd. had an annual average earnings growth of 5.8% over the past 5 years.
Ituran Location and Control has a dividend yield of 7.8%, the highest in the communications equipment industry. Klarman began buying the stock in the third quarter of 2007 at about $12.50 per share and bought more in several following quarters, bringing his total position to 1,721,066 shares in the third quarter 2008. He then sold 35,400 shares in the first quarter of 2011 when the average price rose to about $16.50. He owned 1,685,666 shares at the end of the third quarter 2011.
Ituran was founded in 1994 and is another recent-IPO company, debuting in 2005. Since then, it has grown its revenue by an annual rate of 8.3%, and its free cash flow by 7.6%. It has had positive cash flow each year, with a record $34.7 million in 2010, and has cash of about $50 million on its balance sheet.
The company began paying a dividend in 2006, at $0.16 per share. It has since grown to $1.50 per share in 2010. Its dividend policy, adopted in January 2004, states that it will pay distributions in an amount of not less than 25% of its net profits, calculated based on its financial statement for the period ending on December 31 of the fiscal year the dividend is proposed to be paid. However, it updated that policy in November 2009 to say that its dividend distribution will not be less than 50% of its net profits, with certain caveats.
BP PLC ADS (BP)
BP Plc is the holding company of one of the world's largest petroleum and petrochemicals groups. BP Plc Ads has a market cap of $133.97 billion; its shares were traded at around $41.83 with a P/E ratio of 6 and P/S ratio of 0.4. BP Plc Ads had an annual average earnings growth of 10.1% over the past 10 years. Klarman’s holding is 16.4% of his portfolio.
Klarman bought 5.5 million shares of BP in the second quarter of 2011 at an average price of $44, and 8,240,950 shares in the third quarter of 2011 at an average price of about $41 per share.
The dividend yield of BP Plc Ads stocks is 4%. Its first dividend on record on its website, paid in the first quarter of 1993, was 1.05 pence per share. Its last dividend, in its second quarter of 2011, was $0.42 per share. From the first through third quarters of 2010, it paid no dividend, due to the catastrophic oil spill in the Gulf of Mexico, of which it was a key contributor, and the $20 billion trust fund it established as a result. In its 2010 annual report, management said that they “intend to raise the level of the dividend as the company’s circumstances and performance improve.” The company hopes to realize more value, particularly increasing its investment in exploration.
The report went on to say, “We believe this level is supported by the success of our disposal programme thus far, and by the improving business environment, but is balanced by the recognition of our continuing obligation to fund the Trust until the end of 2013 and the need to retain financial flexibility. We intend to increase the dividend level over time in line with the circumstances of the company. The total dividend paid to BP shareholders in 2010 was $2.6 billion, compared with $10.5 billion for 2009. The dividend paid per share was 14 cents, a decrease of 75% compared with 2009. In sterling terms, the dividend decreased 76%. We determine the dividend in US dollars, the economic currency of BP.”
To see more of Klarman’s dividend stocks, click here.
PDL BioPharma Inc. (PDLI)
PDL BioPharma Inc. (PDLI) is a biopharmaceutical company focused on the research, development and commercialization of novel therapies for inflammation and autoimmune diseases, acute cardiac conditions and cancer. It pioneered the humanization of monoclonal antibodies, and derives much of its revenues from royalties from its proprietary technology. Royalties revenue has increased each year since 2000, and the company expects it to continue to growth before the expiration of its Queen et al patents in December 2014.
It has the highest yield of any of Klarman’s stocks at 9.6%. He bought the stock in the fourth quarter of 2010 when the stock was at about $5.73 per share, and traded several times since then. Most recently, he added in the third quarter 6,373,675 at about $6 per share, bringing his total holding to 15,636,000 shares. In previous years, the stock traded for $20 to $30 per share. It has declined 73% over the last five years, so he bought it at a low point, as he does with most of his investments.
The company changed its focus in 2008, selling many of its assets. It also began paying a dividend in 2008, at $6.85 per share, including a special cash dividend of $4.25 per share resulting from the sale of several assets. The subsequent two years the dividend was lower. It most recently paid $1 per share in 2010.
The board of directors of PDL adopted a quarterly dividend policy on Feb. 25, 2011, that it would pay $0.15 each quarter for 2011. Its usual process is to meet at the beginning of each year, review the total annual dividend payment for the prior year and determine whether to increase, maintain or decrease the quarterly dividend payments for that year. To make its determination, the board considers the economic outlook, corporate cash flow, the company’s liquidity needs, and the health and stability of credit markets.
BreitBurn Energy Partners L.P. (BBEP)
BreitBurn Energy Partners L.P. is an independent oil and gas limited partnership, recently formed by a subsidiary of Provident Energy Trust, focused on the acquisition, exploitation and development of oil and gas properties. Breitburn Energy Partners L.P. has a market cap of $1.08 billion; its shares were traded at around $17.81 with a P/E ratio of 56.9 and P/S ratio of 3.4.
BreitBurn has a dividend yield of 9.5%. Klarman first bought the stock in the fourth quarter of 2007 at about $30 per share, and bought more as the price went down. He then began selling portions of his holding as the stock went up. He has owned 2.5 million shares since the second quarter of 2011.
The company began paying a dividend since its IPO in the fourth quarter of 2006, at $0.40 per share. It steadily increased the dividend until it ceased payouts for most of 2009 while it paid down debt to increase its liquidity position. It restarted in April 2010, at $0.375 per share. It began raising the dividend again in the following quarters, reaching $0.43 in its most recent payout declared in October 2011.
Breitburn had total reserves of 118.9 million Boe at year-end 2010, with an average reserve life index of greater than 17 years. In total, 91% of its estimated proved reserves were classified as proved and developed.
As of February 28, 2011, the company had total borrowings of $427 million, comprised of $305 million in senior notes and $122 of bank borrowings. It raised approximately $100 million through a common stock offering in 2010 as well, and about $82 million on its balance sheet. In 2009 it generated $195 million in free cash flow, and $113 million in 2010.
It trades for $17.49 per share now — less than book value of $23.53 per share.
Ituran Location and Control Ltd. (ITRN)
Ituran provides location-based services, consisting predominantly of stolen vehicle recovery and tracking services, as well as wireless communications products used in connection with its location-based services and various other applications. Ituran Location And Control Ltd. has a market cap of $301 million; its shares were traded at around $12.73 with a P/E ratio of 10.5 and P/S ratio of 2. Ituran Location And Control Ltd. had an annual average earnings growth of 5.8% over the past 5 years.
Ituran Location and Control has a dividend yield of 7.8%, the highest in the communications equipment industry. Klarman began buying the stock in the third quarter of 2007 at about $12.50 per share and bought more in several following quarters, bringing his total position to 1,721,066 shares in the third quarter 2008. He then sold 35,400 shares in the first quarter of 2011 when the average price rose to about $16.50. He owned 1,685,666 shares at the end of the third quarter 2011.
Ituran was founded in 1994 and is another recent-IPO company, debuting in 2005. Since then, it has grown its revenue by an annual rate of 8.3%, and its free cash flow by 7.6%. It has had positive cash flow each year, with a record $34.7 million in 2010, and has cash of about $50 million on its balance sheet.
The company began paying a dividend in 2006, at $0.16 per share. It has since grown to $1.50 per share in 2010. Its dividend policy, adopted in January 2004, states that it will pay distributions in an amount of not less than 25% of its net profits, calculated based on its financial statement for the period ending on December 31 of the fiscal year the dividend is proposed to be paid. However, it updated that policy in November 2009 to say that its dividend distribution will not be less than 50% of its net profits, with certain caveats.
BP PLC ADS (BP)
BP Plc is the holding company of one of the world's largest petroleum and petrochemicals groups. BP Plc Ads has a market cap of $133.97 billion; its shares were traded at around $41.83 with a P/E ratio of 6 and P/S ratio of 0.4. BP Plc Ads had an annual average earnings growth of 10.1% over the past 10 years. Klarman’s holding is 16.4% of his portfolio.
Klarman bought 5.5 million shares of BP in the second quarter of 2011 at an average price of $44, and 8,240,950 shares in the third quarter of 2011 at an average price of about $41 per share.
The dividend yield of BP Plc Ads stocks is 4%. Its first dividend on record on its website, paid in the first quarter of 1993, was 1.05 pence per share. Its last dividend, in its second quarter of 2011, was $0.42 per share. From the first through third quarters of 2010, it paid no dividend, due to the catastrophic oil spill in the Gulf of Mexico, of which it was a key contributor, and the $20 billion trust fund it established as a result. In its 2010 annual report, management said that they “intend to raise the level of the dividend as the company’s circumstances and performance improve.” The company hopes to realize more value, particularly increasing its investment in exploration.
The report went on to say, “We believe this level is supported by the success of our disposal programme thus far, and by the improving business environment, but is balanced by the recognition of our continuing obligation to fund the Trust until the end of 2013 and the need to retain financial flexibility. We intend to increase the dividend level over time in line with the circumstances of the company. The total dividend paid to BP shareholders in 2010 was $2.6 billion, compared with $10.5 billion for 2009. The dividend paid per share was 14 cents, a decrease of 75% compared with 2009. In sterling terms, the dividend decreased 76%. We determine the dividend in US dollars, the economic currency of BP.”
To see more of Klarman’s dividend stocks, click here.
