Brian Rogers has been the portfolio manager of T. Rowe Price Equity Income Fund since it was founded in 1985. Over his career, his cumulative 5- and 10-year return beat the S&P over the same time span. His 5-year cumulative is 14.4%, versus the S&P’s 12.2%, and his 10-year cumulative is 52.5%, versus the S&P’s 16.4%. He employs a classic value investing strategy and seeks out-of-favor or undervalued yet established companies that pay above-average dividends. In an interview in the November issue of Barrons, Rogers comments on his investing outlook in light of the vacillating economic conditions: “The economic performance of most companies has been quite strong. Earnings and cash flow have been strong. Corporate balance sheets are in great shape, yet prices have fallen sharply. That sets up investors to take advantage of some good price opportunities. Also, when you compare the equity market to yields in the fixed-income market, equity markets globally look like a solid value.”
He has many high yielding stocks, but these are his holdings with the highest yields and highest predictability rankings: Telefonica (TEF, Financial), ITT Corp. (ITT, Financial), Avon Products Inc. (AVP, Financial), FirstEnergy Corp. (FE, Financial).
Telefonica (TEF)
Dividend Yield: 4.5%
GuruFocus Predictability Rating: 4.5 Stars
Telefonica reinstated its dividend in July 2002, after replacing cash dividend payments with bonus issues of share since 1998. It paid out its first dividend under the new policy on April 11, 2003, in the amount of .25 euros pare share.
Telefonica typically decides its dividend a year in advance. The board of directors has approved a 1.75 euro per share dividend target for 2012. It appears that Telefonica is committed to stable shareholder remuneration for the long term, as it has also set a target of a minimum annual shareholder target of 1.75 euros per share beyond 2012.
The dividend is covered mainly through Telefonica’s cash flow. In 2010, the company spent 80% of cash flows on shareholder remuneration, equivalent to 9% of its market cap. Under the company’s heading of shareholder remuneration are both cash dividends (5.872 billion euros) and acquisition of treasury shares (883 million euros).
Over the last several years, Telefonica’s free cash flow has been trending downward, while its dividend has been increasing. In 2008, it had cash flow from operations of $24 billion, of which $6.5 billion it spend on dividends, and had $12.9 billion in free cash flow. Then in 2010, it had cash flow from operations of $22 billion, of which it paid $8.3 billion on dividends, and had $10.7 billion in free cash flow. Additionally, its payout ratio was 47% for both 2009 and 2010, an increase from 37% in 2008 and 28% in 2007. In the trailing 12 months, the payout ratio jumped to 77%.
GuruFocus contributor Ben Strubel commented on another factor to consider about the company’s dividend: “While a current dividend of over 8% and a projected dividend of more than 11% might look attractive at first, investors should be aware that the dividend is paid in euros. The likelihood of continued sovereign debt and banking troubles in Europe is high and the value of the euro may continue to fall against the dollar, thus effectively reducing the dividend an American investor would receive.”
Rogers acquired 4.25 million Telefonica shares at about $24.54 per share in the second quarter 2011, and 450,000 more in the third quarter at about $20.78 per share.
ITT Corp. (ITT)
Dividend Yield: 5.3%
GuruFocus Business Predictability Rank: 4 Stars
ITT is a diversified leading manufacturer of highly engineered critical components and customized technology solutions for growing industrial end-markets in energy infrastructure, electronics, aerospace and transportation. Building on its heritage of innovation, ITT partners with its customers to deliver enduring solutions to the key industries that underpin our modern way of life. Founded in 1920, ITT is headquartered in White Plains, NY, with employees in more than 15 countries and sales in more than 125 countries.
Each year since 2006, ITT has raised its dividend. In each of the four quarters of 2010 and 2009, ITT declare dividends or $0.25 and $0.125, respectively, per share of common stock. It also paid a dividend in the first quarter of 2011 of $0.25. Dividend payouts are subject to board approval depending on operating results, financial requirements, and other considerations. Therefore, dividends are not guaranteed. The company believes that its current debt to total capitalization ratio of 23.3% have positioned it to grow its business with investments for organic growth through strategic acquisitions, while providing dividends and making share repurchases.
A $100 investment in ITT on Dec. 31, 2005, with dividends reinvested would be worth less than the S&P 500 and S&P 500 Industrials Index by Dec. 31, 2010.
Brian Rogers has owned shares of ITT since the first quarter of 2010 when it was about $102 per share and bought more each quarter until the first quarter of 2011 when the stock went up to $115.36 and he sold 253,700 of his 1,516,750 shares. He added 50,000 shares in the third quarter of 2011 at about $97.86 per share.
Avon Products Inc. (AVP)
Dividend Yield: 5.2%
GuruFocus Business Predictability Rank: 3 Stars
Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through approximately 6.5 million active independent Avon Sales Representatives. Avon's product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and mark.
Founded in 1886, Avon began paying out dividends in 1991 at $0.03 per share. It is now considered a U.S. Broad Dividend Achiever for increasing its annual regular dividends payments for the last 10 or more consecutive years. By Feb. 3, 2011, it paid a quarterly dividend of $0.23.
Avon’s free cash flows have been lower in the last four years than they have been historically. While they consistently pulled in above $600 million in most years from 2001 to 2006, from 2007 to 2010 they generated cash flow between $3 and 4 million, except in 2009, when they generated $485 million. Also in 2010, they completed their first major acquisitions in almost 20 years.
Rogers bought 5 million Avon shares in the first quarter of 2001 and sold out by the second quarter of 2008. He bought 7,132,400 shares in the first quarter of 2011 at about $28.24 per share, and added 950,000 more shares in the second quarter 2011. The stock price dropped to about $23.71 in the third quarter of 2011, and he did not buy or sell any shares.
FirstEnergy Corp. (FE)
Dividend Yield: 5.9%
GuruFocus Business Predictability Ranking: 3.5 Stars
FirstEnergy is a diversified energy company dedicated to safety, reliability and operational excellence. Headquartered in Akron, Ohio, FirstEnergy includes the nation's largest investor-owned electric system and a diverse generating fleet with a total capacity of more than 23,000 megawatts.
FirstEnergy has been paying a cash dividend since 2008. It has remained at $0.55 since then. Its dividend yield is 4.89%. The boards review the dividend on a quarterly basis, and is counting on the benefits of a merger, and a growing strength in its competitive markets position and new opportunities for future growth to sustain the payout. In 2010, FirstEnergy received $850 million of cash dividends from its subsidiaries and paid $670 million in cash dividends to common shareholders.
The company’s payout ratio has increased significantly over the past several years. It increased each year from 47% to 85% in 2010, as the dividend yield has increased each year from 3% to 5.9% in the same time span.
Rogers first bought FirstEnergy in the first quarter of 2007, purchasing 2,348,000 shares at an average price of $61.88. He sold shares in the subsequent quarters when it rose to about $70.92 per share in the first quarter of 2008. He bought more when the price plummeted to $39.38 per share in the second quarter of 2009, and has bought and sold shares since then. He did not purchase more in the third quarter of 2011 as the price rose to $43.75. He owns 2,259,900 shares as of the third quarter.
For more dividend stocks in Rogers’ income portfolio from GuruFocus, go here.
He has many high yielding stocks, but these are his holdings with the highest yields and highest predictability rankings: Telefonica (TEF, Financial), ITT Corp. (ITT, Financial), Avon Products Inc. (AVP, Financial), FirstEnergy Corp. (FE, Financial).
Telefonica (TEF)
Dividend Yield: 4.5%
GuruFocus Predictability Rating: 4.5 Stars
Telefonica reinstated its dividend in July 2002, after replacing cash dividend payments with bonus issues of share since 1998. It paid out its first dividend under the new policy on April 11, 2003, in the amount of .25 euros pare share.
Telefonica typically decides its dividend a year in advance. The board of directors has approved a 1.75 euro per share dividend target for 2012. It appears that Telefonica is committed to stable shareholder remuneration for the long term, as it has also set a target of a minimum annual shareholder target of 1.75 euros per share beyond 2012.
The dividend is covered mainly through Telefonica’s cash flow. In 2010, the company spent 80% of cash flows on shareholder remuneration, equivalent to 9% of its market cap. Under the company’s heading of shareholder remuneration are both cash dividends (5.872 billion euros) and acquisition of treasury shares (883 million euros).
Over the last several years, Telefonica’s free cash flow has been trending downward, while its dividend has been increasing. In 2008, it had cash flow from operations of $24 billion, of which $6.5 billion it spend on dividends, and had $12.9 billion in free cash flow. Then in 2010, it had cash flow from operations of $22 billion, of which it paid $8.3 billion on dividends, and had $10.7 billion in free cash flow. Additionally, its payout ratio was 47% for both 2009 and 2010, an increase from 37% in 2008 and 28% in 2007. In the trailing 12 months, the payout ratio jumped to 77%.
GuruFocus contributor Ben Strubel commented on another factor to consider about the company’s dividend: “While a current dividend of over 8% and a projected dividend of more than 11% might look attractive at first, investors should be aware that the dividend is paid in euros. The likelihood of continued sovereign debt and banking troubles in Europe is high and the value of the euro may continue to fall against the dollar, thus effectively reducing the dividend an American investor would receive.”
Rogers acquired 4.25 million Telefonica shares at about $24.54 per share in the second quarter 2011, and 450,000 more in the third quarter at about $20.78 per share.
ITT Corp. (ITT)
Dividend Yield: 5.3%
GuruFocus Business Predictability Rank: 4 Stars
ITT is a diversified leading manufacturer of highly engineered critical components and customized technology solutions for growing industrial end-markets in energy infrastructure, electronics, aerospace and transportation. Building on its heritage of innovation, ITT partners with its customers to deliver enduring solutions to the key industries that underpin our modern way of life. Founded in 1920, ITT is headquartered in White Plains, NY, with employees in more than 15 countries and sales in more than 125 countries.
Each year since 2006, ITT has raised its dividend. In each of the four quarters of 2010 and 2009, ITT declare dividends or $0.25 and $0.125, respectively, per share of common stock. It also paid a dividend in the first quarter of 2011 of $0.25. Dividend payouts are subject to board approval depending on operating results, financial requirements, and other considerations. Therefore, dividends are not guaranteed. The company believes that its current debt to total capitalization ratio of 23.3% have positioned it to grow its business with investments for organic growth through strategic acquisitions, while providing dividends and making share repurchases.
A $100 investment in ITT on Dec. 31, 2005, with dividends reinvested would be worth less than the S&P 500 and S&P 500 Industrials Index by Dec. 31, 2010.
Brian Rogers has owned shares of ITT since the first quarter of 2010 when it was about $102 per share and bought more each quarter until the first quarter of 2011 when the stock went up to $115.36 and he sold 253,700 of his 1,516,750 shares. He added 50,000 shares in the third quarter of 2011 at about $97.86 per share.
Avon Products Inc. (AVP)
Dividend Yield: 5.2%
GuruFocus Business Predictability Rank: 3 Stars
Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through approximately 6.5 million active independent Avon Sales Representatives. Avon's product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and mark.
Founded in 1886, Avon began paying out dividends in 1991 at $0.03 per share. It is now considered a U.S. Broad Dividend Achiever for increasing its annual regular dividends payments for the last 10 or more consecutive years. By Feb. 3, 2011, it paid a quarterly dividend of $0.23.
Avon’s free cash flows have been lower in the last four years than they have been historically. While they consistently pulled in above $600 million in most years from 2001 to 2006, from 2007 to 2010 they generated cash flow between $3 and 4 million, except in 2009, when they generated $485 million. Also in 2010, they completed their first major acquisitions in almost 20 years.
Rogers bought 5 million Avon shares in the first quarter of 2001 and sold out by the second quarter of 2008. He bought 7,132,400 shares in the first quarter of 2011 at about $28.24 per share, and added 950,000 more shares in the second quarter 2011. The stock price dropped to about $23.71 in the third quarter of 2011, and he did not buy or sell any shares.
FirstEnergy Corp. (FE)
Dividend Yield: 5.9%
GuruFocus Business Predictability Ranking: 3.5 Stars
FirstEnergy is a diversified energy company dedicated to safety, reliability and operational excellence. Headquartered in Akron, Ohio, FirstEnergy includes the nation's largest investor-owned electric system and a diverse generating fleet with a total capacity of more than 23,000 megawatts.
FirstEnergy has been paying a cash dividend since 2008. It has remained at $0.55 since then. Its dividend yield is 4.89%. The boards review the dividend on a quarterly basis, and is counting on the benefits of a merger, and a growing strength in its competitive markets position and new opportunities for future growth to sustain the payout. In 2010, FirstEnergy received $850 million of cash dividends from its subsidiaries and paid $670 million in cash dividends to common shareholders.
The company’s payout ratio has increased significantly over the past several years. It increased each year from 47% to 85% in 2010, as the dividend yield has increased each year from 3% to 5.9% in the same time span.
Rogers first bought FirstEnergy in the first quarter of 2007, purchasing 2,348,000 shares at an average price of $61.88. He sold shares in the subsequent quarters when it rose to about $70.92 per share in the first quarter of 2008. He bought more when the price plummeted to $39.38 per share in the second quarter of 2009, and has bought and sold shares since then. He did not purchase more in the third quarter of 2011 as the price rose to $43.75. He owns 2,259,900 shares as of the third quarter.
For more dividend stocks in Rogers’ income portfolio from GuruFocus, go here.
