A Look At Donald Yacktman's Favorite Dividend Picks

Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Mr. Yacktman has been managing funds for over four decades now. The Austin-based firm, which he founded, specializes in purchasing growth companies that it deems are undervalued. Yacktman prefers investments that have good business, shareholder-oriented management, or low purchase price. In the latest quarter, the firm had $16.6 billion under its management. Its portfolio was heavy on consumer/non-cyclical investments (29.67%), services (27.82%), healthcare (16.08%), and technology (15.43%).

Investors who are closely watching the moves of such a huge money manager would be interested on what goes into its 13F Filing. I analyzed the top dividend stocks of Yacktman that have robust growth performances. These are Cisco Systems (NASDAQ: CSCO), Viacom (NASDAQ: VIAB), U.S. Bancorp (NYSE: USB), The Bank of New York Mellon Corporation (NYSE: BK), and Colgate-Palmolive Company (NYSE: CL). Let's see whether these stocks can satisfy the income growth-seeking investors or not.

Stock

Shares Held

Market Value ($ million)

% of Portfolio

% Change

Dividend Yield

Cisco Systems

52,495,386

$1,002.399

6.03%

14%

2.84

Viacom

12,044,963

$645.489

3.88%

%

2.06

U.S. Bancorp

12,596,698

$432.067

2.60%

-1%

2.47

The Bank Of New York Mellon

7,835,108

$177.230

1.07%

%

2.10

Colgate-Palmolive

961,750

$103.119

0.62%

0%

2.34

Annualized Dividend Amount ($)

 

Cisco Systems

Viacom

U.S. Bancorp

The Bank Of New York Mellon

Colgate-Palmolive

2012

0.500

1.075

0.585

0.520

2.440

2011

0.180

0.900

0.500

0.480

1.690

2010

 

0.450

0.200

0.360

2.030

2009

 

 

0.200

0.510

1.720

2008

 

 

1.700

0.720

1.560

2007

 

 

1.625

0.920

1.400

2006

 

 

1.390

0.860

1.250

Source: nasdaq.com

Cisco Systems

The fund manager continued to buy shares of Cisco in the latest quarter. It has been doing the same in the previous 7 straight quarters shown in the 13F Filing. As of the end of September, the holding amounted to 52.495 million, or 6.03% of Yacktman's total portfolio. Cisco Systems, Inc. is a leading communications and IT networking company based in San Jose, California. Cisco is poised to achieve its goal to dominate in the market. It has made ten acquisitions this year. Among its recent acquisitions are Meraki, a leader in cloud computing; and Cariden Technologies, Inc., a supplier of network solutions for the telecommunications service providers.

The stock price has been performing rather robustly. It had gained 12.78% year-to-date. Investors are lured to this profitable company. Its profit margin as of the end of October, 17.62%, was 11% higher than that for the same period in 2011. The earnings per share have swelled by 27.54% in the current year. This positive growth is likely to continue next year. Cisco is an attractive dividend income source with a yield of 2.82%. It has been paying its investors stable and increasing dividends. However, recently, it failed to maintain its payout ratio. Cisco offers a perfectly yield of about 3%, which is more than sufficiently covered by a low payout ratio of 23.01%.

Viacom

For the first time in the last 9 quarters of 13F Filing, Yacktman sold a small portion of its stake in Viacom. Nonetheless, the holding was still at its highest level in many quarters- at over 12 million shares. As of the end of September, the holding formed 3.88% of the fund manager's total portfolio. Viacom Inc. is an entertainment content company operating in the US and other countries. The owner of Nickelodeon and MTV was ordered to pay, as part of a buyout, $12 million to former investors of Harmonix Music Systems Inc. It is recalled that Viacom bought Harmonix in 2006.

Viacom stock had gained a notable 19.26% from the previous year. Its main strength lies in its impressive earnings per share growth and high profit margins. This year, earnings have leaped by 20.82%. This double-digit rise is expected to carry on to the next year, at a rate of 15.74%. Meanwhile, the profit margin is an encouraging 17.17%. The profit margin for the end of the third quarter, 19.33%, was 31% higher than that for the same period in 2011. The company lures investors for its yield, at 2.08%, and for paying stable dividends. However, Viacom was not able to maintain its low payout ratio. From 14.30%, the payout ratio rose to 23.84%. However, the stock still has a lot of room for dividend growth in future.

U.S. Bancorp

Yacktman maintained its holding of over 12 million in U.S. Bancorp. The latest 13F Filing showed a slight reduction, 1%, but the holding still comprised a significant 2.60% share to total portfolio. Prior to the latest quarter, the 13F Filing showed continuous purchases by the fund manager, at least in the previous 8 quarters. U.S. Bancorp is a banking and financial services company based in Minneapolis, Minnesota. The long-term ratings of the fifth-largest bank by deposits were cut by Moody's last week. Despite the downgrade, U.S. Bancorp is still one of Moody's highest rating banks.

The stock price had gained 18.22% year-to-date. The earnings per share have swelled by 41.54% in the current year. This positive growth was estimated to continue in the next year. U.S. Bancorp enjoys a high profit margin. As of the end of the third quarter, the quarterly profit margin of 24.97% was higher than last year's 23.03%. The banking company has a decent yield of 2.48% and is a loyal dividend payer for many years now. Its latest payment is 44% larger than for the amount in the same period last year. U.S. Bancorp has improved its dividend-generating capacity based on the payout ratio. From a historical level of 44.71%, payout ratio went down significantly to 25.19%.

The Bank of New York Mellon Corporation

The fund manager continued to increase its stake in the bank. As of the end of September, the holding comprised 1.07% of Yacktman's total portfolio. The 13F of Yacktman has been showing purchases in the previous 9 straight quarters including the latest. The Bank of New York Mellon Corporation is a financial services company that operates around the world. The New York-based company had recently named Karen B. Peetz president. Chief Executive Officer Gerald L. Hassell used to hold the position. The company has been appointed to provide tri-party collateral management services for the European multi asset class clearing house CME Clearing Europe.

The stock price had gained a remarkable 27.10% year-to-date, and it continues to grow robustly. Despite the contraction in its earnings per share this year, the company expects a better performance in the next with EPS to grow by 15.46%. This stems from the fact that it is a profitable company. Its quarterly profit margin for the end of the third quarter, 18.64%, was higher by 11% than that for the same quarter in 2011. It is also an attractive addition to any investor's portfolio for its yield of 2.10% and stable dividend payments. The bank's ability to raise dividends has improved based on its payout ratio. From a level of 32.65%, the ratio went down to 27.50%.

Colgate-Palmolive Company

Yacktman continued to hold on to its stake in Colgate-Palmolive. As of the end of the third quarter, its position formed 0.62% of the fund manager's total portfolio. Yacktman has not sold a single share in at least the last nine 13F Filings. Colgate-Palmolive Company is a consumer products company that operates worldwide. The company has recently been given a "buy" rating by TheStreet Ratings for its solid stock price performance, growth in earnings, and increasing profit margins, among others.

The company had enjoyed a 14.59% increase in its earnings per share during the current year. This improvement will likely be sustained next year. Colgate is another company with an encouraging profitability. Its quarterly profit margin for the end of the third quarter, 15.10%, was a bit higher than that for the same quarter in 2011. Colgate has a yield of 2.34%. The latest dividend payment, of $0.62, was higher than that for the same quarter in 2011. Meanwhile, the company has slightly increased its dividend payout ratio. From a historical ratio of 42.40%, the payout ratio slightly rose to 46.35%.


ecofinstat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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