The fund’s value strategy focuses on company restructuring and/or industry consolidations; long-term, multi-cap investments that give companies time to execute business plans and improve fundamentals; and diversification across industries and restructuring themes with about 60-70 holdings.
Williams makes large commitments to particular sectors that he feels are undervalued. This can lead the fund's performance to deviate significantly from the overall stock market.
His top dividends are:
Southern Copper Corporation (PCU) is one of the world's largest copper producers. Its balance sheet is paramount in the midst of the financial crisis. Its conservative capital structure will prove valuable as the firm goes through ups and downs due to copper prices.
Southern Copper's Mexican and Peruvian mines are low cost, a dependable source of free cash flow in nearly any copper price environment. Southern Copper boasts a massive, long-lived reserve base of 132 billion pounds at a long-run assumed copper price of merely $1.80.
Windstream Corp. (WIN): The firm serves about 3 million phone lines and 1.3 million Internet access customers. Windstream’s operations are located primarily in the Southeast and Southern Midwest. The firm has closed several agreements that have added scale in the core telecom business and brought new capabilities, such as cloud computing expertise.
Windstream should be able to maintain strong margins and cash flow for a long time. Recent acquisitions provide management with a fantastic opportunity to cut costs and build on existing customer relationships, providing a source of growth to offset the declining phone business. Although customer growth has slowed, Windstream's Internet access penetration rates are among the highest in the industry. Windstream offers a good balance between dividends and financial strength. Paying out a high percentage of cash flow will keep management disciplined.
Lorillard Inc. (LO): Lorillard is the third-largest cigarette manufacturer in the United States. Its flagship brand, Newport, claims a 13% share of the total cigarette industry and a 36% share of the menthol category.
Newport's share has been steadily growing; 2010 was the 20th consecutive year that the brand increased its share. The menthol category is declining at a slower pace than the broader cigarette industry. Its share of the total industry has risen from 26% in 2002 to 35% at the end of 2010. Lorillard generates the highest operating margins in the domestic cigarette industry.
Pfizer Inc. (PFE): Pfizer Inc. is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer has three business segments: health care, animal health and consumer health care. Its products are available in numerous countries.
Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs.
The company's large size confers significant competitive advantages in developing new drugs. This combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.
Pfizer's size establishes the largest economy of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs.
Pfizer has consistently generated returns on capital well in excess of its cost of capital. With a quarterly dividend of $0.20 per share as of February, the stock boasts a dividend yield of close to 4%, and it is expected that the dividend payout ratio will increase over the next few years.
Pfizer's longer-term growth prospects may be underappreciated, as early Phase I or II drugs with blockbuster potential are largely off the radar of most investors.
ConocoPhillips (COP): ConocoPhillips is an international integrated energy company. With refining capacity of 2 million barrels of oil a day, it's the second-largest refinery operator in the U.S.
ConocoPhillips produces a higher proportion of natural gas than its peers and should benefit from environmental concerns that favor natural gas.
In addition, management plans to increase distributions to shareholders by increasing dividend payments and repurchasing shares. Despite variation in short-term energy prices, long-term supply and demand factors should sustain a high price environment, resulting in returns in excess of capital costs.
ConocoPhillips has significant ownership in pipeline and other transportation assets, which offer steady income that is not as tied to variations in commodity prices. Integration of refineries with Canadian heavy oil production should lead to improved margins and higher returns.