With global equity markets up approximately 73%(MSCI World Index) from the market bottom in early March of last year, stocks today in general appear to be fairly to fully valued. That said, from our perspective, it is more a market of stocks and not so much a stock market with some stocks more attractively priced than others. As with previous stock market collapses, the bounce off the bottom was led by lower quality stocks, those that suffered the worst declines during the downturn. While most stocks were up nicely for the year, steadier, higher quality businesses, particularly those that pay a dividend, significantly underperformed lower quality non-dividend paying issues, and today we believe offer investors much better value. For example, in 2009 the 370 stocks in the S&P 500 that paid some kind of a dividend were up 27.7% on average versus a return of 82.4% for the stocks that did not pay a dividend. The same held true for global equities with the stocks that pay a dividend in the MSCI World Index up 32.3% versus a return of 75% for the stocks in the index that did not pay a dividend. In general, the higher the dividend yield the lower the return in 2009. As we got closer to year-end, dividend stocks perked up, and were in part responsible for our Funds’ strong 4th Quarter results.
Two new stocks were added to the Worldwide High Dividend Yield Value Fund during the quarter: Exelon and BAE Systems. Exelon is an electric utility holding company which generates the bulk of its earnings and cash flow from low-carbon nuclear power generation. As the owner of the nation’s largest nuclear power portfolio, it is the low cost producer of electricity in the wholesale markets in which it operates. This low cost position allows it to earn operating margins substantially higher than other competitors. At initial purchase, it was trading around $48 per share, or approximately 12 times earnings and at roughly a 20% discount to our conservative estimates of its intrinsic value of approximately $60 per share. It has a dividend yield of approximately 4.2%. Exelon also stands to be a beneficiary of any type of climate change regulation or legislation, particularly cap-and-trade since nuclear power generation produces almost no carbon. While we have not included this in our intrinsic value calculation, if this comes to pass, we believe the company could enjoy a substantial increase in volume as the cost of producing electricity for much of the industry will rise considerably.
BAE Systems is one of the largest defense contractors in the world, by revenue, and also has one of the lowest valuations based on enterprise value (“EV”) to earnings before interest and taxes (“EBIT”) among defense industry stocks. Nevertheless, it has a growing Saudi Arabian business and a partnership role on the two largest combat aircraft programs of the next generation: the F-35 Joint Strike Fighter and the Eurofighter Typhoon. It is a classic low expectation stock that we believe should benefit significantly from any kind of positive surprise. At purchase it was trading at approximately 5.5 times 2010 EV/EBIT, and at roughly 8.3 times forward earnings with a net dividend yield of approximately 4.1%. BAE Systems has increased its dividend in 13 of the last 15 years. Compounded annual dividend growth for the last 5 years has been 10.42%.
Read the complete shareholder letter
Two new stocks were added to the Worldwide High Dividend Yield Value Fund during the quarter: Exelon and BAE Systems. Exelon is an electric utility holding company which generates the bulk of its earnings and cash flow from low-carbon nuclear power generation. As the owner of the nation’s largest nuclear power portfolio, it is the low cost producer of electricity in the wholesale markets in which it operates. This low cost position allows it to earn operating margins substantially higher than other competitors. At initial purchase, it was trading around $48 per share, or approximately 12 times earnings and at roughly a 20% discount to our conservative estimates of its intrinsic value of approximately $60 per share. It has a dividend yield of approximately 4.2%. Exelon also stands to be a beneficiary of any type of climate change regulation or legislation, particularly cap-and-trade since nuclear power generation produces almost no carbon. While we have not included this in our intrinsic value calculation, if this comes to pass, we believe the company could enjoy a substantial increase in volume as the cost of producing electricity for much of the industry will rise considerably.
BAE Systems is one of the largest defense contractors in the world, by revenue, and also has one of the lowest valuations based on enterprise value (“EV”) to earnings before interest and taxes (“EBIT”) among defense industry stocks. Nevertheless, it has a growing Saudi Arabian business and a partnership role on the two largest combat aircraft programs of the next generation: the F-35 Joint Strike Fighter and the Eurofighter Typhoon. It is a classic low expectation stock that we believe should benefit significantly from any kind of positive surprise. At purchase it was trading at approximately 5.5 times 2010 EV/EBIT, and at roughly 8.3 times forward earnings with a net dividend yield of approximately 4.1%. BAE Systems has increased its dividend in 13 of the last 15 years. Compounded annual dividend growth for the last 5 years has been 10.42%.
Read the complete shareholder letter
