When renowned value manager Tweedy Browne launches its first new fund in more than a dozen years, it's bound to get attention. And the new (TBJDX) Worldwide High Dividend Yield Value Fund (TBHDX), which opened to investors on Sept. 5, is right in the New York "value" manager's sweet spot.
"We're looking for above-average yields, for good companies that have a record of paying steady dividends over long periods of time," says Tweedy partner Bob Wyckoff.
Stocks with high dividend yields tend to be "value" stocks almost by definition. Companies that can pay big dividends are mostly ones with strong and stable cash flows. If management is willing to give back so much money to investors, it usually means they can't find enough ways to invest in growing their business instead.
That's also great for profits, because it usually means the industry isn't over-investing in ruinous competition. And, finally, if the dividends are high in relation to the company's share price, it usually means those shares are cheap compared with earnings.
So it's no wonder that investing in high-yielding shares has proved, overall, to be a great long-term investment strategy. It means investing in stable, well-established and highly profitable companies when their shares are cheap. Tweedy Browne's marketing materials offer a variety of academic studies to back up what smart investors already know.
Tweedy Browne says it has been pursuing exactly the same investment strategy it employs in Worldwide High Dividend Yield Value with a number of private client accounts since the start of 2003. During that time, the strategy has earned an average return of 18.9% a year. While that's lagged global benchmarks, it's also been a lot less volatile. The strategy's worst quarter, in the turbulent start of 2003, saw a loss of just 3.97%.
The question: Is this really the best time to launch, or invest in, another dividend income fund? So-called "value" stocks have soared so high in price in the last few years that they no longer offer much in the way of value. It's a paradox I've touched on
here before: "Growth" now looks better value than "value."
"I don't have a clue whether 'value' or 'growth' will outperform in the short run," Wyckoff says. But he remains convinced the strategy will prove its worth, as usual, over the long term. Nor does he think the bull market of the past four years has snapped up all the bargains. "We see plenty of opportunities out there," he says.
Among them: banks and other financials. The recent shakeout has left many of them around the world trading on 10 to 12 times earnings and with yields of 3.5% to 6%, Wyckoff says. That is certainly cheap by historic standards. Wyckoff says he also sees attractive yields in a few energy stocks, some of the unloved pharmaceuticals and even a few media businesses.
Geographically, investors tend to get better yields in Europe than in the U.S., let alone the Far East. Among the markets Wyckoff singles out are the U.K., Mexico and even South Korea. The fund will invest globally and is diversified by geography as well as by industry sector.
Information on its holdings won't be available until the end of the month.
The fund is likely to be heavily weighted toward large-company stocks, for the obvious reason that they tend to be the big dividend payers. And that's probably good news for investors: Large-cap stocks are looking much cheaper these days than the smaller fry.
Wyckoff highlights one danger of dividend investing: Buying shares with the very highest yields is usually a bad strategy, because those companies are often in distress. (Think:
. When the stock collapsed, the yield looked huge -- just before management slashed the payout.) Wyckoff says you're usually better off investing in yields a little lower down the ladder.
You can bet there will be a good stream of investors banging at Tweedy Browne's door looking to hand over their money to the new fund. The firm's first two mutual funds, its $509.7 million domestic
Value (TWEBX) and the $8.3 billlion
Global Value (TBGVX) funds, established strong performance records soon after they were launched back in the early 1990s. (The domestic fund has now underperformed Wall Street for the past five years. Global Value is closed to new investors, but Value reopened its doors in May after a two-year hiatus.)
Management and family at the company promise to invest at least $8.9 million of their own money in the new fund, alongside the $670 million they already have invested in the firm's other investment vehicles. That's a good sign for investors. And the new fund's annual expenses aren't too high, at 1.37%. There is no load.
In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.