by Charles Sizemore | July 19, 2012 6:30 am
If you don’t know who Jeremy Grantham is, you should. In fact, once you finish reading this article, you should drop whatever else you are doing, go to his website, and read his latest quarterly letter. Make it a habit to read every quarterly letter as they come out; you’ll be a better investor for it.
(While you’re at it, make it a habit to read his colleague James Montier’s work as well; Montier’s writing on behavioral investing is some of the most insightful I’ve ever seen.)
Grantham is the chief investment strategist of Grantham Mayo Van Otterloo (GMO), an investments firm with more than $100 billion under management. He’s also one of those rare managers who is not afraid to be a voice in the wilderness. Virtually alone among large money managers, Grantham steadfastly refused to get caught up in the 1990s tech bubble. His principled stand lost him nearly half his assets under management due to client defections, but those that stuck with him did well in the bear market that followed.
A decade later, he voiced concerns again about bubbles forming in the real estate and financial sectors … and we all know how those turned out.
But lest anyone accuse him of being a “permabear,” Grantham was pounding his fist on the table immediately after the 2008 meltdown telling investors to buy when everyone else was too terrified to move.
Suffice it to say, this is a guy who has had a good grasp on the market conditions of the past several years. He’s someone you ought to listen to.
With that said, let’s take a look at Mr. Grantham’s top five stock holdings as of his firm’s SEC filings, as reported by GuruFocus.
|Stock||Ticker||Current Price||Dividend Yield|
|Johnson & Johnson||JNJ||$69.03||3.6%|
|Philip Morris International||PM||$88.99||3.4%|
As a demanding value investor, it is not at all surprising to see that all five of Grantham’s top holdings pay dividends far in excess of the market average of approximately 2%.
It’s also not at all surprising to see that his holdings are serial dividend growers. After all, for long-term investors, the dividend today is far less important than the dividend five years from now.
Coca-Cola (NYSE:KO) is the second-largest holding of my favorite ETF, the Vanguard Dividend Appreciation ETF (NYSE:VIG), and Microsoft (NASDAQ:MSFT) and Philip Morris International (NYSE:PM) likely will be holdings as well once they meet the time requirements. (To be included in the ETF’s underlying index, a stock must have a minimum of 10 consecutive years of dividend increases. Microsoft started paying a dividend in 2003, and Philip Morris International was spun off from parent Altria (NYSE:MO) less than four years ago.)
The real king of dividend growers is Johnson & Johnson (NYSE:JNJ), however. This iconic maker of Band-Aids, Tylenol, Listerine, and too many other health and pharmaceutical products to list has raised its dividend for an astonishing 49 consecutive years.
The last year in which Johnson & Johnson failed to raise its dividend, John F. Kennedy was the President of the United States. Stop and think about that for a minute.
The only stock in Grantham’s top five that has cut its dividend in recent years is Big Pharma giant Pfizer (NYSE:PFE), which has been hard hit by the patent expirations and competitive forces that have affected its rivals.
Big Pharma has done quite nicely in 2012, however, and Pfizer currently trades near its 52-week highs.
There are no guarantees that owning a basket of Mr. Grantham’s largest stock holdings will beat the market, of course. There are plenty of years in which his portfolios underperform the market by a wide margin, particularly “risk on” years in which investors throw risk tolerance to the wind.
Still, if you are looking for a portfolio of solid dividend payers for steady, consistent returns, Mr. Grantham’s stocks are worth a good look.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. Sizemore Capital is long MSFT, JNJ and VIG. Sign up for a FREE copy of his new special report: “Top 3 ETFs for Dividend-Hungry Investors.”
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