Wednesday, June 24, 2009

Going Abroad for Dividends

Tweedy, Browne Worldwide High Dividend Yield Value fund has a portfolio filled with high-yielding overseas stocks.

Tweedy, Browne, a venerable New York City-based money manager known for its deep-value approach to stock selection, launched the dividend fund in September 2007. The managers try to identify stocks that sell at discounts to what they deem to be the true value of the underlying companies and that offer above-average dividend yields. Says Browne: "We are giving up a bit of the discount to intrinsic value in return for a better dividend yield for the company." Browne says the total returns achieved by the two strategies should be roughly the same, but that the dividend-oriented one generates more current income.

One of the fund's U.S. holdings is Genuine Parts (GPC), which has raised its dividend 53 consecutive years. At its June 18 closing price of $33.27, it yields 4.8%. Genuine is the largest auto-parts distributor in North America, with an ability to whisk fenders and other parts to body shops.

England's Diageo (DEO), the world's largest liquor producer (top brands include Johnnie Walker and Tanqueray), competes in an utterly different business. But here, too, a strong distribution system underwrites profits, cash flows and dividends. Says fund co-manager Thomas Shrager: "Diageo has the largest number of leading brands, so it fills more of distributors' trucks. Distribution is key in alcohol." At $55.97, Diageo yields 4%.

Other large holdings include Philip Morris International (PM), the world's largest cigarette maker, and Total (TOT), the French oil giant. Both companies (Philip Morris through its predecessor, Altria) have regularly boosted their dividends, even during recessions. At $42.53, Philip Morris yields 5.1%; Total yields 5.9% at its closing price of $54.10. Tweedy, Browne is also keen on Pearson (PSO), the British publisher, mainly for its large U.S. textbook publishing business. The stock, which closed at $9.91, yields 6.4%

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