Arnold Van Den Berg is the chairman and co-chief investment officer of Century Management, which he founded in 1974. Since its inception more than 36 years ago, the firm’s flagship CM Value I Composite fund has achieved an annualized return of 13.4% net of fees, beating the S&P 500”²s annualized return of 11.7% over the same period.
That may seem like only a slight outperformance, but over time it really adds up: If you’d invested $10,000 in both the S&P 500 and the flagship fund at the time of its inception, the former would now be worth $619,966 while the latter investment would be worth $975,894. That’s a difference of 57%.
Since 1999, the S&P 500 Index has had only four down years, and Century Management has beaten it each time — by an average of more than 25% — including a three-year victory lap that began with the collapse of the original dot-com bubble. While more speculative portfolios and less disciplined funds were crumbling, Century turned in returns of 45%, 11% and 0.5% from 2000-2002. The S&P 500 dropped by 9%, 12% and finally 22% during those respective years.
The irony here is that Van Den Berg’s firm now owns many of the big technology names that survived the bubble bursting, after recently buying in at prices much better aligned to the companies’ actual values. Some of Century’s biggest holdings now include Microsoft (MSFT), Dell (DELL) and Intel (INTC). The firm also made Cisco (CSCO) its primary focus during the first quarter of the year, buying nothing but shares in the unloved networking giant at a historically low valuation while shaving several other positions.
Target Corporation (TGT, Financial) represents the largest of Van Den Berg’s new dividend stock positions. Century purchased 224,179 shares during the second quarter for an estimated average price of $48.97.
Target has an illustrious dividend track record and the highest yield among Van Den Berg’s new purchases. The discount retailer raised its dividend for the 44th consecutive year when it gave shareholders a 20% raise in June, extending the second-longest streak among retailers. Only Lowe’s (LOW, Financial), with a streak dating back five more years, currently has it beat.
Unlike many companies with extensive dividend growth records, Target isn’t giving incremental bumps to its payout each year just to keep its streak alive. In fact, the company has accelerated its dividend growth in recent years. Since 2006 alone, Target has more than tripled its payout and is currently on pace to tally its largest year-to-year dividend growth in more than 20 years. The rapid rate at which its payout is climbing, combined with a stock price hovering around its 52-week low, has pushed Target’s yield to historic highs.
Shares of TGT are currently trading at $48.44, where they feature a 2.48% dividend yield. Based on his estimated purchase price, Van Den Berg’s position has fallen about 1% and currently carries a 2.45% yield-on-cost.
ABM Industries (ABM, Financial), one of the few companies with a dividend track record comparable to Target’s, is a provider of facility services (janitorial, parking, security, etc.). Century paid an estimated average of $23.53 for 161,050 shares during the second quarter.
Like Target, ABM has increased its dividend output every year dating back to 1968, although its payout growth has slowed in recent years. The company hasn’t given its shareholders a double-digit raise since 2000. ABM has increased its quarterly payout by just a half-penny each of the last four years, including the 3.7% raiseheading into this year, which was the smallest dividend hike from the company since 1993.
Shares of ABM are currently trading at $23.50, where they carry a 2.38% and are virtually unmoved from Century’s estimated purchase price.
Penn Virginia Corporation (PVA, Financial) is a diversified energy company, engaged directly in the domestic production of natural gas and oil with additional exposure to coal and natural resources via its indirect interest in Penn Virginia Resource Partners (PVR, Financial). Century purchased 49,000 shares of the company during the second quarter, paying an estimated average of $15.00 apiece.
When it comes to dividend growth, Penn Virginia is truly the underachiever in this group. While the other four companies have all given their shareholders a raise in 2011, PVA hasn’t done so in more than 15 years. Analysts currently expect the company to lose money in both 2011 (-$0.99 per share) and 2012 (-$0.04 per share), so it’s unlikely we’ll see the company hike its dividend any time, even with a considerable cash hoard capable of funding its payout for nearly five years.
Shares of PVA currently trade at $13.63, where they feature a 1.65% dividend yield. That’s about 9% lower than Van Den Berg’s estimated purchase price, which produces a 1.50% yield-on-cost.
Micrel (MCRL, Financial) is a global manufacturer of integrated circuit solutions. Century paid an estimated average of $11.93 for 32,530 shares in the company during the second quarter.
Micrel has a relatively short dividend history. The company initiated its quarterly dividend in 2007 and has raised it twice since then, most recently giving shareholders a 14% raise in May. Micrel has the smallest yield among Century’s new dividend stocks, but with a payout ratio of just 22% it also has plenty of upside for future growth.
Shares of MCRL currently sit at $10.60, where they feature a 1.51% dividend yield. Based on his estimated purchase price, Van Den Berg’s position has fallen about 11% and currently carries a 1.34% yield-on-cost.
Pool Corporation (POOL, Financial) is a wholesale distributor of swimming pool, landscape and irrigation products. Van Den Berg purchased 7,370 shares of the company during the second quarter, paying an estimated $28.16 apiece.
Pool began returning cash to shareholders in 2004 and put together a nice dividend growth streak right off the bat, improving its annual output each of the next five years. After pausing briefly during the economic downturn, Pool resumed growing its payout by giving shareholders an 8% raise in May. In all, Pool has now more than doubled its dividend since its initiation.
Shares of POOL currently trade at $30.40, where they feature a 1.84% dividend yield. Based on its estimated purchase price, Century’s shares have already appreciated 7.4% and carry a yield-on-cost of 1.99%.
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All portfolio statistics and purchase price estimates are provided by GuruFocus.com, and are current as of June 30, 2011. All share prices are current as of the market’s close on Wednesday, July 6, 2011.
That may seem like only a slight outperformance, but over time it really adds up: If you’d invested $10,000 in both the S&P 500 and the flagship fund at the time of its inception, the former would now be worth $619,966 while the latter investment would be worth $975,894. That’s a difference of 57%.
High Tech at Low Prices
Century Management’s flagship fund has underperformed the market in recent years, producing a cumulative return of just over 2% from 2006 through 2010 while the S&P 500 gained a little over 12.2% during the same period. But even coming off those subpar results, this could eventually prove to be a very valuable time to look at Mr. Van Den Berg’s portfolio, given the excitement generated by the recent spate of IPOs from unprofitable technology companies.Since 1999, the S&P 500 Index has had only four down years, and Century Management has beaten it each time — by an average of more than 25% — including a three-year victory lap that began with the collapse of the original dot-com bubble. While more speculative portfolios and less disciplined funds were crumbling, Century turned in returns of 45%, 11% and 0.5% from 2000-2002. The S&P 500 dropped by 9%, 12% and finally 22% during those respective years.
The irony here is that Van Den Berg’s firm now owns many of the big technology names that survived the bubble bursting, after recently buying in at prices much better aligned to the companies’ actual values. Some of Century’s biggest holdings now include Microsoft (MSFT), Dell (DELL) and Intel (INTC). The firm also made Cisco (CSCO) its primary focus during the first quarter of the year, buying nothing but shares in the unloved networking giant at a historically low valuation while shaving several other positions.
Century Management’s Five New Dividend Stocks
After loading up on just Cisco to start the year, Van Den Berg found plenty of opportunities elsewhere during the second quarter. Century’s flagship fund added to 15 existing investments and created ten new positions, with five of those new buys being dividend-paying stocks. Here they are, ranked by how much capital the firm committed to each.Target Corporation (TGT, Financial) represents the largest of Van Den Berg’s new dividend stock positions. Century purchased 224,179 shares during the second quarter for an estimated average price of $48.97.
Target has an illustrious dividend track record and the highest yield among Van Den Berg’s new purchases. The discount retailer raised its dividend for the 44th consecutive year when it gave shareholders a 20% raise in June, extending the second-longest streak among retailers. Only Lowe’s (LOW, Financial), with a streak dating back five more years, currently has it beat.
Unlike many companies with extensive dividend growth records, Target isn’t giving incremental bumps to its payout each year just to keep its streak alive. In fact, the company has accelerated its dividend growth in recent years. Since 2006 alone, Target has more than tripled its payout and is currently on pace to tally its largest year-to-year dividend growth in more than 20 years. The rapid rate at which its payout is climbing, combined with a stock price hovering around its 52-week low, has pushed Target’s yield to historic highs.
Shares of TGT are currently trading at $48.44, where they feature a 2.48% dividend yield. Based on his estimated purchase price, Van Den Berg’s position has fallen about 1% and currently carries a 2.45% yield-on-cost.
ABM Industries (ABM, Financial), one of the few companies with a dividend track record comparable to Target’s, is a provider of facility services (janitorial, parking, security, etc.). Century paid an estimated average of $23.53 for 161,050 shares during the second quarter.
Like Target, ABM has increased its dividend output every year dating back to 1968, although its payout growth has slowed in recent years. The company hasn’t given its shareholders a double-digit raise since 2000. ABM has increased its quarterly payout by just a half-penny each of the last four years, including the 3.7% raiseheading into this year, which was the smallest dividend hike from the company since 1993.
Shares of ABM are currently trading at $23.50, where they carry a 2.38% and are virtually unmoved from Century’s estimated purchase price.
Penn Virginia Corporation (PVA, Financial) is a diversified energy company, engaged directly in the domestic production of natural gas and oil with additional exposure to coal and natural resources via its indirect interest in Penn Virginia Resource Partners (PVR, Financial). Century purchased 49,000 shares of the company during the second quarter, paying an estimated average of $15.00 apiece.
When it comes to dividend growth, Penn Virginia is truly the underachiever in this group. While the other four companies have all given their shareholders a raise in 2011, PVA hasn’t done so in more than 15 years. Analysts currently expect the company to lose money in both 2011 (-$0.99 per share) and 2012 (-$0.04 per share), so it’s unlikely we’ll see the company hike its dividend any time, even with a considerable cash hoard capable of funding its payout for nearly five years.
Shares of PVA currently trade at $13.63, where they feature a 1.65% dividend yield. That’s about 9% lower than Van Den Berg’s estimated purchase price, which produces a 1.50% yield-on-cost.
Micrel (MCRL, Financial) is a global manufacturer of integrated circuit solutions. Century paid an estimated average of $11.93 for 32,530 shares in the company during the second quarter.
Micrel has a relatively short dividend history. The company initiated its quarterly dividend in 2007 and has raised it twice since then, most recently giving shareholders a 14% raise in May. Micrel has the smallest yield among Century’s new dividend stocks, but with a payout ratio of just 22% it also has plenty of upside for future growth.
Shares of MCRL currently sit at $10.60, where they feature a 1.51% dividend yield. Based on his estimated purchase price, Van Den Berg’s position has fallen about 11% and currently carries a 1.34% yield-on-cost.
Pool Corporation (POOL, Financial) is a wholesale distributor of swimming pool, landscape and irrigation products. Van Den Berg purchased 7,370 shares of the company during the second quarter, paying an estimated $28.16 apiece.
Pool began returning cash to shareholders in 2004 and put together a nice dividend growth streak right off the bat, improving its annual output each of the next five years. After pausing briefly during the economic downturn, Pool resumed growing its payout by giving shareholders an 8% raise in May. In all, Pool has now more than doubled its dividend since its initiation.
Shares of POOL currently trade at $30.40, where they feature a 1.84% dividend yield. Based on its estimated purchase price, Century’s shares have already appreciated 7.4% and carry a yield-on-cost of 1.99%.
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All portfolio statistics and purchase price estimates are provided by GuruFocus.com, and are current as of June 30, 2011. All share prices are current as of the market’s close on Wednesday, July 6, 2011.
