At Investment Underground, we admire Warren Buffett's and George Soros' stock picking skills. And we also love getting paid dividends. We decided to take a look at the stocks that either Buffett or Soros (or both) own that pay good dividends to shareholders. Here's what we found, plus some commentary on each:
Johnson & Johnson (JNJ): A classic Warren Buffett pick. The healthcare giant trades 12.5 times EPS, 2.9 times book value per share, and 2.7 times revenues per share. The respective industry averages are 13, 2.7, and 2.5. In 2010, EPS was $4.78, which was an increase of 8.64%, after falling 3.72% in 2009. For 2011, the company expects EPS to be between $4.72 and $4.82. Q1 2011 earnings come out on April 19. We think this is a healthcare stock that Buffett may continue to buy.
Walmart (WMT): This retailing behemoth is owned by both Buffett and Soros. We're not surprised. has a P/E of 12.5, P/B of 2.9, P/S of 0.5. The respective industry averages are 14.7, 2.9, and 0.5. From 2003 to 2007, the P/S multiples were between 0.5 and 0.9. In 2010, EPS grew by 12.1% to $4.18, after +9.14% in 2009. The company expects Q1 2011 EPS to be between $0.91 and $0.96, versus last year's EPS of $0.87. For the full year ending in January 2012, the company expects EPS to be in the range of $4.35 to $4.50. The next earnings release occurs on May 17.
Exxon Mobile (XOM): This energy giant is owned by both Buffett and Soros. At a market cap of just over $400B, the energy giant is the largest company in the world. Trading at a P/E of 13, Exxon pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry.
Exxon is a well-diversified company, with exposure to markets throughout the world. The firm made a big push into natural gas, which many experts claim to be the energy source of the future, with its $31B acquisition of XTO Energy. This natural gas position could be especially beneficial if nuclear power production is reduced after the disasters in Japan, as natural gas is more of a substitute than oil. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here.
General Electric (GE): Buffett owns a helping of shares, and we recently noted that the gurus at Dodge & Cox hold a hefty 134 million shares of the industrial conglomerate. GE is a diversified technology, media and financial services company. GE’s products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. Currently, GE is trading at a 16.69 P/E multiple and paying a dividend of $0.14/share. GE has experienced significant volatility throughout the last two week due to concerns about their boiling water reactors in Japanese nuclear plants that had experienced damage due to the catastrophic earthquake and tsunami on March 11. The risk for GE extends beyond their exposure to the crisis in Japan, as people in the US begin to question the safety of GE’s boiling water reactors that are found in 23 of the 104 atomic power plants in the US.
American Express (AXP): Buffett is a long-time shareholder and strong advocate of CEO Kenneth Chennault. Widely considered the provider of the high-end credit cards of choice, if not the most convenient to use, American Express delivers a healthy 1.61% dividend to shareholders. While analyst targets might put some downward pressure on the current $44.8/share price in the short-term, its very cash-generative business that profits from full value-chain control, underscores the long-term strength that could justify an increase to dividend yields as a draw for income investors. The future P/E is 11 with 2011 EPS growth targets at 11.7%.
Kraft Foods (KFT): Buffett showed disappointment in Kraft management when it purchased Cadbury, but we think the acquisition will be a positive in the long run despite its price tag. KFT has a P/E of 22.0, P/B of 1.5, and P/S of 1.1. The respective industry averages are 17.7, 3.9, and 1.4. Between 2001 and 2007, the price to sales multiples were 1.6, 2.3, 1.8, 1.9, 1.4, 1.7, and 1.4, respectively. In 2010, EPS grew by 17.73% to $2.39, after rising by 5.73% in 2009. The company expects 11% to 13% growth in EPS in 2011. The Q1 2011 earnings statements are revealed on May 2. This is a solid consumer name that pays 3.8% dividend yield, as we wrote about here.
Lowe’s Corporation (LOW): Soros has been a buyer while Buffett has attenuated his position in the home improvement retailer. We expect sales growth averaging 5% and a low single-digit increase in average store footage as Lowe’s emphasizes sales of branded goods. Lowe’s should also be able to keep administrative, selling and IT costs in check, consistent with its recent operating history. As a result, margins should gradually inch northward from last year’s 6.8%. Shares are worth more than $32 apiece with these reasonable assumptions and a 10% discount rate.
Home Depot (HD): Soros has also been a buyer of Home Depot, while Buffett has drawn down his position in the world's largest home improvement retailer. In FY 2011 through January 2011, the company posted an EPS of $2.01, which was an increase of 29.7%, after increasing by 17.16% in FY 2009. The company expects EPS from continuing operations to be up 9.5% to $2.20, excluding the impact of future share repurchases. Using excess cash, the company intends to repurchase approximately $2.5 billion of outstanding shares throughout the year. Proforma EPS in 2010 was $2.03, and analysts expect FY 2012 to produce proforma EPS between $2.22 and $2.37. Q1 2011 earnings come out on May 17 with a range from $0.47 to $0.52 for proforma EPS. In comparison, Q1 2010 had a proforma EPS of $0.45. HD shares have a P/S multiple of 0.9. From 2004 to 2007, the multiples were 1.3, 1.1, 0.9, and 0.6, respectively.
Verizon (VZ): Soros has been a major owner in the telecom space. The company has a P/E of 39.8, P/B of 2.6, and P/S of 1.0. The respective industry averages are 16.1, 2.0, and 1.4. Between 2001 and 2007, the P/S multiples were 1.9, 1.6, 1.4, 1.6, 1.1, 1.2, and 1.4, respectively. In 2010, EPS decreased by 30.23% to $0.90, after falling by 42.92% in 2009. Adjusted EPS in 2010 was $2.08, and the Street expects 2011 adjusted EPS to come in between $2.15 and $2.37. We think Verizon could be a surprising winner in the tech space this year.
AT&T (T): Another telecom holding in the Soros portfolio, AT&T is looking to go after the fourth largest cellphone provider in the states, T-Mobile. This provides valuable, complementary spectrum to AT&T's non-CDMA technology and an exit plan for Deutsche Telecom (DTEGY.PK). Shares trade at a P/E of 8.8, P/B of 1.5, and P/S of 1.4. The industry averages are 16.1, 2.0, and 1.4, respectively. From 2001 to 2007, T shares traded at a P/S of 2.9, 2.1, 2.1, 2.1, 1.9, 2.2 and 2.2 respectively. In 2010, EPS was $3.35, which was an increase of 58.02%, after decreasing by 1.85% in 2009. The company expects mid-single digit EPS growth or better in 2011. Q1 2011 results are revealed on April 21.
Procter & Gamble (PG): Both Buffett and Soros hold a stake in this consumer goods and healthcare giant. It has a P/E of 16.8, P/B of 2.7, and P/S of 2.4. The respective industry averages are 18, 3.9, and 2.0. Between 2001 and 2007, PG shares traded with P/S multiples of 2.8, 2.9, 3.0, 2.8, 2.5, 3.0, and 3.1, respectively. In 2010, EPS declined by 3.52% to $4.11, after increasing by 17.03% in 2009. In 2011, the company expects EPS to be between $3.89 and $3.99. We think shares trade at a discount to our fair value estimate of $70 using a 9.5% discount rate for the company.
Wells Fargo Company (WFC): Buffett has steadily accumulated shares of Wells. We are not surprised by his purchases. Wells Fargo has kept it to basics: customer relationships. By focusing on the micro, it has been able to manage credit risk that translate to its more macro indicators: A fair value call at $39/share (a nearly $8/share premium to current trading price), forward P/E of 8.7, 2011 EPS target at a solid 27% and PEG of 1.54. Speaking of dividends, WFC currently yields .63%, but given the previously mentioned stats, it seems to indicate that upward mobility might play into that figure.
Disclosure: I am long XOM, BRK.B.
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