VIDEO: How I’m Playing The End of a 30-year Bond Cycle

Watch me chat with Covestor’s Mike Tarsala about how to invest at the end of a 30-year bull market in bonds.  I discuss some of the ways I am playing the transition in my Dividend Growth Portfolio.

To read Mike’s write up of the interview, see: Sizemore: How I’m playing the end of a 30-year bull for bonds.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

Jeremy Grantham’s Top 5 Dividend Stocks

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 “perma bear,” 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.



Current Price

Dividend Yield





Johnson & Johnson




Philip Morris International












 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 5 years from now.

Coca-Cola ($KO) is the second-largest holding of my favorite ETF, the Vanguard Dividend Appreciation ETF ($VIG), and Microsoft ($MSFT) and Philip Morris International  ($PM) will likely be holdings as well once they meet the time requirements. (In order to be included in the ETF’s underlying index, a stock must have a minimum of ten consecutive years of dividend increases.  Microsoft started paying a dividend in 2003, and Philip Morris International was spun off from parent Altria less than four years ago.)

The real king of dividend growers is Johnson & Johnson ($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 ($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.

Disclosures: Sizemore Capital is long MSFT, JNJ and VIG.  Sizemore Capital recently sold its holdings of PM.

Charles Sizemore Discusses Dividend Investing

Charles Sizemore, editor of the Sizemore Investment Letter, discusses the ins and outs of dividend investing with Joe Clark on Consider This radio.…

Charles Sizemore, editor of the Sizemore Investment Letter, discusses the ins and outs of dividend investing with Joe Clark on Consider This radio.

To hear the interview, follow this link.

Consider This With Big Joe Clark is a show designed to provide every day people with real, useful information that can be translated into daily life and thought. Each week Joe covers a different aspect of financial planning, retirement options, and current economic conditions in common sense language that everyone can understand.  To find out more about the show, please visit the Financial Enhancement Group’s site.

Joseph A. Clark, CFP, RFC – Big Joe, a Certified Financial Planner (CFP) and Registered Financial Consultant (RFC), has been in the financial services industry for more than 20 years. He is the managing partner of Financial Enhancement Group, LLC, a Hoosier-based financial services company with offices in Anderson, Lafayette, Indianapolis and Rensselaer. Joe is also a teacher, he began teaching a financial capstone class for the Financial Counseling and Planning students at Purdue University in the fall of 2008.

Beware of Chasing High Dividend Yields

What’s the easiest way to find a stock with a 10% dividend yield?

Find a stock yielding 5% and watch its price get cut in half.

I say this mostly in jest, but

What’s the easiest way to find a stock with a 10% dividend yield?

Find a stock yielding 5% and watch its price get cut in half.

I say this mostly in jest, but this is precisely what happened to investors in RadioShack (NYSE:$RSH), the iconic electronics and gadgets chain still found in most American shopping malls.  At time of writing, RadioShack yields 9.8%, and this is after the company already slashed its dividend.

Given that it is paying out substantially more than it earns, RadioShack will almost certainly further reduce or eliminate its dividend in the coming quarters.  The company barely earns a profit, and it faces a war of attrition it can’t win against larger “big box” rivals like Best Buy (NYSE:$BBY) and Wal-Mart (NYSE:$WMT) and from internet retailers like Amazon (Nasdaq:$AMZN).

In a race with no winners, it will be interesting to watch what falls faster, RadioShack’s price or its dividend.

I’ll quit beating up on RadioShack.  In fact, I wouldn’t be surprised to see the company enjoy a nice rally in the months ahead.  No one can argue that RadioShack is not cheap; the stock trades for 0.67 time book value and a shocking 0.11 times sales.  Almost incredibly the stock currently sells for less than the value of its cash in the bank, $4.97 vs. $5.70.  (Before you value investors start licking your chops, keep in mind that RadioShack has substantial debts against that cash; as of year end, the company had $1.4 billion in debts vs. a little under a billion in cash and receivables.)

The stock could also benefit from a dead-cat bounce.  With the short interest in the stock currently more than seven times the average daily trading volume, it could benefit from a short-covering rally if nothing else.

But that is exactly how investors should view RadioShack—as a potential short-term trade and nothing more.  It should certainly not be considered a long-term income play, as that 9.8% yield can disappear overnight.

This brings me to the point of this article: an investor should never chase a high dividend yield.

Exceptionally high dividend yields generally mean one of two things:

  1. The dividend is expected to be the only source of return, and investors should not anticipate much in the way of capital gains.
  2. The dividend is at serious risk of getting cut and the market has already priced the stock accordingly.

The first category is not all bad, so long as investors understand this going into the trade.  Many popular investments such as mortgage REITS would fall under this category.  Annaly Capital (NYSE:$NLY) and Chimera Investment Corp (NY6SE:$CIM) both currently yield in excess of 13%.  The dividends are by no means stable, however, and the payout will almost certainly fall when the Fed eventually raises rates.

Tobacco companies have enjoyed phenomenal returns of late and have been the Sizemore Investment Letter’s best-performing investment theme over the past year (see “Tobacco Stocks Still Smokin’”), but they too should be considered zero-capital-gains investments over the longer term. Investors can profit quite handsomely from the reinvestment of dividends and from share buybacks, but this is a sector in long-term terminal decline.

It is the second category where investors tend to get themselves in trouble, both in the stock investing and bond investing.  Alas, your humble correspondent was one of the hapless souls who bought shares of Thornburg Mortgage in 2008 because it had a yield of over 10% and a “solid” portfolio of super-prime jumbo mortgages.  That 10% yield didn’t get me very far when the company filed for bankruptcy. How many other investors were seduced by the 20-30% yields offered on General Motors bonds around that same time?  Again, we know how that worked out.

Investors can avoid these traps by setting reasonable expectations.  If a yield seems too high to be true, it probably is.  Roll up your sleeves, take a look at the company’s financials, and make that judgment call with a sober mind.

Income seekers currently have their pick of the litter of safe, moderately high-yielding stocks with room for dividend growth and price appreciation.  As an asset class, master limited partnerships are attractively priced, and several—including Williams Partners (NYSE:$WPZ) and Kinder Morgan Energy Partners (NYSE:$KMP)—yield over 5%.

REITS are more expensive as an asset class, buy here too there are bargains to be found.  National Retail Properties (NYSE:$NNN) and Realty Income Corp (NYSE:$O) yield 5.7% and 4.5%, respectively, and consider both to be safe.

Investors willing to accept modest risk of a temporary dividend cut should consider Spain’s Telefonica (NYSE:$TEF).  Telefonica currently yields over 10%, and its share price has taken a beating along with the rest of the Spanish stock market.  I consider a dividend cut to be unlikely, though the Board may opt to conserve cash if the European capital markets seize up again.  Still, any cut in this case would be temporary, and I expect the dividend to be substantially higher 3-5 years from now.  Unlike, say, RadioShack, Telefonica has a healthy business with excellent long-term prospects, particularly in Latin America.  Use any weakness as a buying opportunity.

Disclosures: KMP, NNN, O and TEF are all holdings of Sizemore Capital’s Dividend Growth Portfolio.