From his arrival in Canada with a mere $200, Chou embodies that of the true value seeker, in both personality and investments. Driving a bland Dodge Caravan, and utilizing a Costco-branded credit card, Chou’s personality is a far cry from flashier wealth managers. Perhaps such conservation stems from Chou’s tutelage under the “Warren Buffett of Canada,” Prem Watsa. Like most value investors, he seeks equities under-priced from their intrinsic value. Chou prefers a margin of safety of approximately 50%, and a return on equity of 15% or greater. He also likes to purchase baskets of what he so eloquently nicknamed CRAP, or Cannot Realize a Profit. These are companies that are teetering on the edge of liquidation, but due to market irrationality, are trading at less then the value of the full liquidation of the company.
His training from his fellow Canadian investor paid off handsomely, as he was named Fund Manager of the Decade by the Canadian Investment Award committee in 2005 with a track record that any wealth manager would be proud of. His flagship fund boasts of a 10.6% annualized return since its inception in 1986, which is a 4.02% premium over the S&P 500 for the same period.
To claim that Francis Chou is a dividend investor would be an exaggeration as data demonstrates that as of Q3 of 2011, Francis Chou owns 11 equities in a portfolio of 36 stocks that yields any sort of dividend. In conjunction, the totality of these dividend yielding equities comprises a mere 11.3% of the aggregate portfolio. His top four dividend stocks however, are all situated in the telecom or electronic industries. On average, the top four stocks in his portfolio yields 7.14% on average, with a mean yield on cost of 4.45%. The following is an executive summary of Chou’s top four dividend stocks:
Nokia Corp (NOK)
Nokia is the top dividend yielding equity of Chou’s portfolio, but comprises a mere .04% of the portfolio. Their lines of business include that of mobile communication devices and mobile infrastructure networks. Nokia’s position did not change from quarter to quarter.
Nokia currently trades at $4.92, with a market capitalization of $18.43 billion. Since 2006, Nokia has grown its dividend at an annual rate of approximately 4.62%. Currently, Nokia has a rather large dividend yield of 11.61% and a yield on cost of 4.75%. However, Nokia’s dividend payout ratio is more then likely unsustainable in the current environment at 247% of earnings, as in conjunction with their two most recent quarters, they posted consecutive losses. Analysts have placed an average price target of $6.70 upon NOK, yielding an upside potential of 36.17% from its last trading price.
Currently, rumors are swirling in the telecom industry regarding an apparent interest in the acquisition of RIMM by Nokia. However, a divide exist among analysts, as some believe that while their portfolio of products are somewhat similar, there exists an inherent clash of synergy.
GuruFocus rated NOK with the business predictability rank of 1 star.
RadioShack Corporation (RSH)
RadioShack is a retailer of electronic products, ranging from televisions to more niche equipment such as metal detectors. RadioShack comprises 3.03% of the portfolio with no changes made to the amount of shares held quarter to quarter.
RadioShack currently trades at $9.81, with a market capitalization of $979.40 million. RadioShack has paid a consistent dividend of $.25 from 2006 to 2010, but doubled it in 2011 to $.50. RadioShack’s current dividend yield is at 5.10%, with a yield on cost of approximately 3.33%. Currently, RadioShack is paying out approximately 50% of their earnings. A quick glance at RadioShack yields some concerning problems. One on hand, their ability to drive sales has remained consistent, even in a lackluster economy, with a 9.5% increase in revenues from Q2 of 2011, and 2.9% from Q3 of 2010. However, operating expenses has increased 10.7% from Q3 201 while even more concerning, net income decreased by 99%. Furthermore, RadioShack competes in an extremely saturated market, with rivals such as Best Buy (BBY) and Walmart (WMT) offering many similar products. The average price targeted place upon RadioShack by analysts is $14.38, yielding an upside potential of 46.5% from its current trading price.
Recently, popular TV-host Jim Cramer of “Mad Money” labeled RadioShack as a dreaded “value-trap” due to “vicious competition” and a terrible quarter. After doubling their dividend after Q3 of 2011, RadioShack also announced the repurchase of $200 million in shares of common stock over the next 12 months to reward their shareholders.
GuruFocus rated RSH with the business predictability rank of 1 star.
SK Telecom (SKM)
SK Telecom provides wireless services through five primary operational segments:
A. Wireless Internet Services (MelOn)
B. Game Portal Services (GXG)
C. Multimedia Services (June)
D. Integrated Media Services (NATE)
E. Convergent Services
SK Telecom’s position remained the same quarter to quarter and comprises .6247% of the portfolio.
Their shares currently trade at $14.65, with a market capitalization of approximately $10.65 billion. SK Telecom pays dividends semi-annually, typically with the larger one at the end of the year. From year to year, SKM has increased its dividend by 3.64%. SKM’s current dividend yield is 6.55%, with a payout ratio of 47.48%, and a yield on cost of approximately 4.36%. The ability of SK Telecom to retain, if not increase their dividend yield in the future is likely. Their financials are relatively strong, with a three-year growth of 9.2% in sales, and 1.6% in net income. In terms of financial metrics, SKM trades at 7.24x earnings, one of the lowest among its international competitors, and a profit margin of 8.22%. The potential upside of SKM is at an average price of $18.23, a 24.4% capital gain from its closing price.
In terms of geo-economic news, the death of Kim Jong-II, in conjunction with nuclear testing, has placed South Korean markets on the edge. Nonetheless, business as usual is in full swing, as Chinese car-maker Chery is working in conjunction with SK Telecom to develop smart vehicles. In other developments, SK Telecom is in the midst of considering the cost-benefits yielded from investing in Australia’s Cockatoo Coal.
GuruFocus rated SKM with the business predictability rank of 1 star.
Vodafone Group (VOD)
The Vodafone group is a mobile communications company offering voice, messaging and data services to their clients. In addition, Vodafone owns 45% of Verizon’s wireless business, and is the world’s largest mobile telecom by measures of revenue. VOD comprises .06% of Francis Chou’s portfolio, and saw no changes in holdings quarter to quarter.
Vodafone closed at $27.72, with a market capitalization of $139.38 billion. Dividends are paid out semi-annually, with the larger of the two later in the year. Since Vodafone started to pay dividends, dividend growth has been 11.04% yearly. Vodafone’s current dividend yield is 5.31%, with a yield-on-cost of 5.34%, and a payout ratio of approximately 52%. The stability of the dividend should remain consistent, if not increase for several reasons. A quick glance demonstrates that VOD has increased its revenues by 29.3% percent and net income by 19.6% over the last three years. Furthermore, their holdings of cash have increased by 307% from 2008. Nonetheless, in 2010, Vodafone stated that they have set a goal of increasing dividends annually by 7% for the next 3 years. Analysts have placed a price target of $33.74 upon VOD, yielding an upside potential of 21.7%.
In July of 2011, Verizon Wireless announced the payment of $4.5 billion to Vodafone, which in turn, is paying out a special dividend of approximately $.64 in February of 2012. If dividend growth is 7%, this yields a dividend of $2.15, for a yield of 7.7% at the current trading price. In other developments Vodafone announced the repurchase of 7.6 million shares on December 21, 2011.
GuruFocus rated VOD with the business predictability rank of 1 star.
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