TOM HUDSON: The hunt for big dividends is not over according to tonight`s “Market Monitor.” Hank Smith is back with us, chief investment officer at Haverford Investments, with more than $6 billion under management. Hank, it`s great to see you, welcome back.
HANK SMITH, CHIEF INVEST. OFFICER, HAVERFORD INVESTMENTS: It`s great to be with you Tom. Happy New Year.
HUDSON: You as well. You`ve heard about this worry, investors have been piling into big dividend stocks for more than a year now because bonds aren`t paying anything. They are looking for some kind of payment on an interest rate. Is this too crowded of a trade at this point?
SMITH: It depends by what you mean by too crowded of a trade. Clearly it was the best performing sector last year. But I think most importantly for today`s investor, the opportunity still exists because you still have so many companies through multiple sectors that have big juicy dividends. And with the Federal Reserve coming out and basically saying they want to keep interest rates low for the next two years, this is the new fixed income.
HUDSON: And you`ve got some picks here that fit this, including Johnson & Johnson (NYSE:JNJ), J&J. This is one of those that hasn`t necessarily participated in the rally that we`ve seen, at least to any significant degree. Here in the mid 6s,– mid 60s, rather, with a yield of 3.5 percent. What are your expectations?
SMITH: Well look, at some point, all the consumer product safety issues they`ve had are going to be behind them, despite today`s announcement. And the pipeline we think is a little bit stronger than what analysts are giving credit for. So we think incrementally the news can get better for Johnson & Johnson (NYSE:JNJ). And really this is a stock with so little expectations.
HUDSON: OK, on one hand you are looking health care. On the other hand, you`re looking snack food and sugary drinks here with Pepsi although it has been trying to put together a healthier profile as well. PEP, the share price well off the highs that we saw back in the spring and summertime with the yield at 3 percent. You expect the stock to be how high in a year?
SMITH: Well, there`s a lot of pressure on management to deliver shareholder returns because this has been a relative under performer. We think the commodity headwind is behind them. And with this shareholder agitation for better returns, we`re looking at, you know, 10, 15 percent return, total return for Pepsi.
HUDSON: Of course Pepsi is known for the drink but it does more business in snack foods with Frito-Lay than Pepsi doesn`t it?
SMITH: It does. And there is tremendous global opportunity in emerging economies with that snack brand.
HUDSON: You also like materials and chemicals, Dupont (NYSE:DD), DD, the ticker symbol on this one, more than a century old. Why is this one a pick for the new century?
SMITH: Dupont (NYSE:DD) had a bear market back in the late summer, early fall. It was part of the market forecasting a recession that didn`t materialize. So Dupont`s fundamentals actually look pretty good. It`s a terrific ag play. And we think with earnings growth in the 10, 12 percent range for this year, it`s a good value today.
HUDSON: Double-digit growth range sounds good. It`s almost a year to the day that we last saw you, Hank, January 21st of last year. You had several picks and I want to walk through these here. Johnson Control is off 18 percent, Whirlpool (NYSE:WHR) down 39 percent. Do you still like any of these, any money still?
SMITH: We`ve sold Whirlpool (NYSE:WHR) in the middle of last year. Clearly we were very early about a rebound in housing. And Whirlpool (NYSE:WHR) really is not at the top tier of quality so we were very quick to get out of that.
HUDSON: Cut your losses there. Others that you liked back then, JPMorgan (NYSE:JPM) and Wal-Mart (NYSE:WMT). Those were split, Wal-Mart (NYSE:WMT) up about 9 percent. McDonald`s (NYSE:MCD) was a nice big winner. Of course this stock was just off of record highs just in the past couple of weeks, up 32 percent. Do you still like these?
SMITH: We still continue to own them. We took some profits in McDonald`s (NYSE:MCD) because of the increased valuation. And you can put that in Pepsi which has not done what McDonald`s (NYSE:MCD) has done. We like Morgan, a little early there and we continue to like Wal-Mart (NYSE:WMT).
HUDSON: Except for Whirlpool (NYSE:WHR) you own everything that we mentioned.
SMITH: That is correct. The firm owns it and I own it personally.
HUDSON: Our Friday “Market Monitor” from New York tonight, Hank Smith. He`s with Haverford Investments.