10 Questions With Dividend Disciple John Snyder
During the tech mania John Snyder seemed stodgy. But in the age of modest gains and big disappointments, he's looking downright hip.
Snyder has managed the (SOVIX)John Hancock Sovereign Investors fund for more than 18 years, focusing most of his attention and his funds' money on "dividend performers," or stocks of companies that have raised their dividends for at least 10 consecutive years. There are more than 300 of them out there, primarily titans like Citigroup (C), IBM (IBM) and ExxonMobil (XOM). To peruse the full list, check out the latest edition of Mergent's Dividend Achievers.
While focusing on those biggies doesn't necessarily lead to pulse-racing results, investors who chased growth in recent years might want to note that bankrupt energy trader Enron wasn't a dividend performer. And his fund has topped the S&P 500 in each of the past two years. In fact, the fund's 6% dip last year was just the fund's second down year on his watch -- it fell 2% in 1994.Today Snyder thinks stocks are fairly valued, and he's picking up shares of Fannie Mae (FNM) and select capital goods stocks. He doesn't think the U.S. consumer can do much more to boost the economy and doesn't expect eye-popping stock gains. Where is Snyder investing, and why is it important to consider dividends in a market with modest prospects? Read on. 1. What's the case for dividend performers today? We're in a back to basics market. I think that quality and valuation play a greater role than they did a couple of years ago. I think that earnings stability plays a greater role, too. Dividend performers are companies with strong balance sheets that have endured different cycles, have strong cash flow and are the 800-pound gorilla within their industry. What we're finding is that the strong get stronger in this [economic] downturn. Most dividend performers tend to be higher quality, stronger companies, and right now the valuations really aren't that different for stronger companies or low-quality companies.
|Fund: (SOVIX)John Hancock Sovereign Investors|
|Managed Since: Jan. 1, 1984*|
|Assets: $1.7 billion|
|One-Year Return: -3.4%/Beats 49% of Peers|
|Five-Year Return: 7.6%/Trails 53% of Peers|
|Expense Ratio: 1.08% vs. 1.42% category avg.|
|Maximum Sales Charge: 5% on Class A shares|
|Sources: Morningstar and jhancock.com.
Returns through March 5. *Co-managed with Barry Evans since August 1996.
Snyder's dividend-rich approach hasn't been too volatile
|Sources: Morningstar. Returns through March 5.|
(HD). Obviously, a big brand name and a good company, but because of solid consumer spending over the past couple of years, I'm not sure that Home Depot's business will pick up a lot. The valuation also has gotten to be a bit stretched. I see their earnings growing more now as a function of cost-cutting, which is fine. But I don't see the revenue growth going forward that we've seen in the past. I think you pay a lower multiple for cost-cutting efforts rather than strong top-line growth. 10. Everyone is looking for companies where they can have confidence in management, see earnings predictability and not pay a high price. What are some companies that fit this profile and are worth holding for five years? One is Fannie Mae. I would buy that stock and not worry about it. Another is American Home Products (AHP). There are issues in the pharmaceutical area, primarily patent expirations. But that's not impacting them as badly as their competitors. Three or four years ago, they weren't well-regarded, but they've done a good job restructuring their business and coming up with some drugs that are quietly adding value. I think it's a company that can grow at about 12% a year for at least three years. You've got about a 2% yield, too. So in the worst-case scenario, the stock holds its current valuation and you get a return that matches the earnings growth and the yield. Another I'd pick for people interested in a higher yield is Duke Energy (DUK), which pays about a 3% yield. Duke has gotten crucified because of the Enron situation. They're very well-managed and are probably the blue-chip of the energy area with lots of diversification. The stock and valuation are both way down. One of my analysts was in New York talking to them [recently]. We think they can grow earnings at around 11% or 12% a year. You get good growth with a cheap valuation. That's good for a conservative investor.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV