Bruce Zessar & Matthew Swaim on the Value of Dividends

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Bruce Zessar & Matthew Swaim on the Value of Dividends

Intelligent Decisions with Shareholder Capital: The Value of Dividends and Buybacks – Bruce Zessar & Matthew Swaim, Advisory Research

Founded in 1974.  $9.1 billion AUM.  New funds – Advisory Research Global Value (MUTF:ADVWX), Advisory Research All Cap Value (MUTF:ADVGX) and Advisory Research Intl Small Cap Value (MUTF:ADVIX).  Invest in the business, good a growing dividend and use cash to buy back stock opportunistically.  Dividends are sticky; share repurchases are not.  Dividends serve as a discipline. Dividends serve as a cushion of built-in value.

Invest in its business

It is difficult to invest outside of your core competencies

Arnott/Asness – Earnings growth is faster if companies overall pay out more of their earnings.

Stocks paying out a growing dividend outperform the S&P 500.  The dividend should be higher than the S&P 500 and growing faster.  A very high dividend is a signal that the dividend is not sustainable.

S&P Dividend Aristocrats index has outperformed both the S&P 500 and equal weight S&P 500 from Jan 1990 to Dec 31, 2011.

Agree with Buffett in 2011 shareholder letter in terms of share buybacks

Best policy is to have a good and growing dividend, augmented by share repurchases at attractive prices
Don’t focus on the highest yielding stocks

ARI Ideas- based on return of capital


Are Buybacks better?  Dividends give you cash.  Buybacks need to be completed at a discount to business value.

Payout yield (dividend yield + share buyback) at 5% is a good place to start.

What we are saying:

Good and growing divided and augmented by share repurchases at attractive prices.

What we are not saying:

Go for the highest yield

Have an all dividend or all buyback plan

Give more back than ……

Vail Resorts, Inc. (NYSE:MTN) – Ski resorts in NA.  Differentiated asset base.  Invested heavily in their business.  Made a few acquisitions.  Bought back some stock at good prices. Current buyback authorization for more repurchases

Next 5 years– generate substantial FCF

Dividend initiated in 2011. Talk of raising dividend already

Q&A: BRK/A dividend?  He invests across the entire spectrum of the stock market.  BRK/A should not pay out a dividend.

These are notes from Value Investing Congress 2012.

Special discount for our followers, October 4th, 2012  New York City value Investing congress: Save $2,200 Code: N12VW1 Expiration: 6/5/12  VIC Landing Page

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