Tags: tech | dividend | apple | cisco

Eaton Vance's Saryan Sees Tech Dividend Growth

Tuesday, 25 Sep 2012 04:06 PM

 

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Technology leaders Apple Inc. and Cisco Systems Inc. are likely to raise their dividends more than 20 percent per year for the next several years, said a manager of one of the largest global equity income funds, citing the companies' strong cash flow and lack of opportunities for other types of spending.

"The problem these tech companies have is, they can't find ways to invest the money" beyond what they currently put into operations, said Judy Saryan, co-manager of the Eaton Vance Tax-Managed Global Dividend Income Fund. That leaves dividends as the best use of excess cash, she said.

Other big tech companies are in a similar position, Saryan said in an interview. Over the same time period, IBM Corp. and Microsoft Corp. will each likely increase their dividends at a double-digit rate, though not more than 20 percent. "We see a lot of dividend-growth opportunities in these large-cap tech names," she said.

Editor's Note: Small-Town Ohio Accountant Uses Simple Forgotten Secret to Help Investors Pocket Millions

Apple this year joined the growing ranks of Silicon Valley blue chips that have begun doling out dividends, bowing to investor pressure for access to its fast-growing cash and securities hoards.

Saryan began buying Apple shares two years ago in another Eaton Vance fund she co-manages, the rare case in which she went in on expectations a stock would pay a dividend. "The stock was drastically undervalued," she said. "They weren't getting paid to hold all that cash." Tax-Managed Global Dividend Income fund bought Apple shares in April.

Apple shares, which pay a dividend yield of about 1.5 percent, rose 70 percent for the 12 months ended Monday.

Cisco Systems Inc. announced its first-ever cash payout in March 2011 and last month declared a 75 percent increase in its quarterly dividend. Dell Inc. approved its maiden cash dividend to shareholders only this month and has set an eventual target for distribution of capital to shareholders of between 20 percent and 35 percent of free cash flow, from an initial 10 percent to 30 percent.

Among major technology companies, Google Inc. and Yahoo Inc. remain prominent holdouts.

Saryan's fund is not buying Google or Yahoo on expectations they will start regular dividends, however. "We just don't have that level of confidence," she said.

AVOIDED RISKY BETS

With about $1 billion in assets under management, Saryan's fund is the third largest in the global equity income category, which comprises dividend-oriented funds that buy stocks from around the world, according to Thomson Reuters' Lipper unit.

While traditional stock mutual funds remain out of favor with investors this year, the income category is pulling in money. Through August, investors have poured $596 million into global income equity funds, $15.2 billion into domestic equity income funds and $872 million into international equity income funds, which focus mainly on overseas stocks, Lipper data shows.

Eaton Vance Tax-Managed Global Dividend Income Fund has beaten 57 percent of peer funds over the past year and 58 percent of peer funds over the past three years, according to Lipper. Over five years, it has beaten 68 percent of peers. While no knockout record, the steady results demonstrate the fund's ability to avoid risky bets, said Lipper fund analyst Jeff Tjornehoj.

IBM, at 2.4 percent of the portfolio, was the fund's top holding at the end of June, followed by McDonald's Corp. and retailer TJX Cos. Apple was the 16th-largest holding.

Also helping the fund lately are its bets on financial services, a sector that has outpaced the overall market this year. Financials made up 19 percent of the fund's holdings as of June 30, versus a category average of 15 percent, according to Morningstar data.

No single bank's common stock made up more than 2 percent of the fund as of June 30. But several holdings have helped, including PNC Financial Services, up 38 percent for the 12 months ended Monday, and Wells Fargo & Co., up 47 percent over the same period.

Saryan said she looked for banks that had improved their balance sheets since the financial crisis.

Banks also benefit from a strengthening real-estate market, which helps Saryan play that trend. Her fund buys few stocks with market capitalizations under $5 billion, ruling out many home-builder stocks. Instead, Saryan said her fund started buying stocks like Wells Fargo in the spring of 2011. Wells Fargo boosted its quarterly dividend in March.

The fund owns fewer stocks in consumer areas than the category average. Many such companies are not increasing dividends as fast as they once did, Saryan explained.

Companies must weigh dividends against other uses of their cash such as share buybacks or acquisitions. Each has its philosophical arguments, but Saryan said the dividend sends the best message to investors.

"If you raise the dividend at a regular rate, it's a sign of the confidence the board has in the business," she said. "You're giving investors the best signal you possibly can of confidence."

Editor's Note: Small-Town Ohio Accountant Uses Simple Forgotten Secret to Help Investors Pocket Millions

© 2014 Thomson/Reuters. All rights reserved.

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