Bruce Zessar & Matthew Swaim on the Value of DividendsVW Staff
Intelligent Decisions with Shareholder Capital: The Value of Dividends and Buybacks – Bruce Zessar & Matthew Swaim, Advisory Research
Founded in 1974. $9.1 billion AUM. New funds – Advisory Research Global Value (MUTF:ADVWX), Advisory Research All Cap Value (MUTF:ADVGX) and Advisory Research Intl Small Cap Value (MUTF:ADVIX). Invest in the business, good a growing dividend and use cash to buy back stock opportunistically. Dividends are sticky; share repurchases are not. Dividends serve as a discipline. Dividends serve as a cushion of built-in value.
Invest in its business
It is difficult to invest outside of your core competencies
Arnott/Asness – Earnings growth is faster if companies overall pay out more of their earnings.
Stocks paying out a growing dividend outperform the S&P 500. The dividend should be higher than the S&P 500 and growing faster. A very high dividend is a signal that the dividend is not sustainable.
S&P Dividend Aristocrats index has outperformed both the S&P 500 and equal weight S&P 500 from Jan 1990 to Dec 31, 2011.
Agree with Buffett in 2011 shareholder letter in terms of share buybacks
Best policy is to have a good and growing dividend, augmented by share repurchases at attractive prices
Don’t focus on the highest yielding stocks
ARI Ideas- based on return of capital
CAN, BDX, CB, EMR, JPM, MCD, MSI, RTN, TGT, UNH
Are Buybacks better? Dividends give you cash. Buybacks need to be completed at a discount to business value.
Payout yield (dividend yield + share buyback) at 5% is a good place to start.
What we are saying:
Good and growing divided and augmented by share repurchases at attractive prices.
What we are not saying:
Go for the highest yield
Have an all dividend or all buyback plan
Give more back than ……
Vail Resorts, Inc. (NYSE:MTN) – Ski resorts in NA. Differentiated asset base. Invested heavily in their business. Made a few acquisitions. Bought back some stock at good prices. Current buyback authorization for more repurchases
Next 5 years– generate substantial FCF
Dividend initiated in 2011. Talk of raising dividend already
Q&A: BRK/A dividend? He invests across the entire spectrum of the stock market. BRK/A should not pay out a dividend.
These are notes from Value Investing Congress 2012.
Special discount for our followers, October 4th, 2012 New York City value Investing congress: Save $2,200 Code: N12VW1 Expiration: 6/5/12 VIC Landing Page