John Buckingham is Principal and Portfolio Manager at Kovitz. He began working at AFAM Capital in 1987 and Kovitz in 2018, as part of the Kovitz acquisition of AFAM.
He has more than 30 years of investment management experience and is Editor of The Prudent Speculator. He chairs the California Investment Team.
In this 4,608 word interview, exclusively in the Wall Street Transcript, John Buckingham details his investing philosophy and top stock picks for the rest of 2021 and into 2022.
“Kovitz is a wealth management firm providing asset management, financial planning, retirement projections — pretty much the full gamut of anything that a high net worth client would need. The firm has more than $7 billion of assets under management.
My operation is based in Orange County, California. We oversee about $875 million of the firm-wide assets. Our strategies are value oriented. We’ve been implementing them since 1990 — so, more than three decades.
And the principles, if you will, that we follow are espoused in The Prudent Speculator investment newsletter.
…We are very much value driven. We strive to find investments, of course, that will appreciate in value over time.
We try to buy stocks at a discount to what we perceive to be their true worth. We take a very long-term view of things. We’re looking at three years to five years or longer in our holding period.
We are not market timers.
We don’t try to navigate the ups and downs by making significant asset allocation shifts. We do not believe that investors can time the market and we think it’s far better to have portfolios positioned across asset allocation mixes properly, in advance of the inevitable volatility that folks will see.”
John Buckingham is a bull on dividend stocks in the current economy:
“…We think that dividends are extraordinarily attractive in the current low interest rate environment. And we like that our portfolios are yielding, in some instances, more than what you could get on a fixed-income strategy.
And of course, with fixed income, the definition is sort of fixed, meaning your coupon payments are not likely to change over time. But the nice thing with dividends — no guarantees of course — is that dividends have historically grown over time.
And so, we very much think that dividend-paying stocks are extraordinarily attractive, especially in this environment.”
John Buckingham details some of his dividend stock picks.
“…On the dividend theme, is inexpensive names with dividend yields in excess of the 30-year U.S. Treasury yield.
The 10-year U.S. Treasury, of course, is a benchmark that many people will compare their yields or income opportunities to. So the 10-year is at 1.6% or so, and the 30-year is higher than that at 2.1%. So, we have dividend payers that are yielding well in excess of 2% and have reasonable valuations. I’ll give you those.
One is the health care provider CVS Health (NYSE:CVS). There, we have a forward, that is, next-12-months — NTM — p/e of 11 and a dividend yield of 2.4%. And with all of these names, we think earnings are likely to grow over time.
It’s not like we’re buying something that we’re not expecting the “E” portion of the p/e to be stagnant. We expect it to grow. And obviously, if the “E” grows and the “P” doesn’t grow, then your p/e becomes lower.
But if the “P” grows along with the “E,” then your 11 multiple can stay 11 and you can still do well. We think it deserves to trade for more than 11 times earnings. So we think we will get a p/e expansion out of some of these stocks in addition to the “E” continuing to grow. And by the way, we get a nice dividend yield too.
Another name in that theme is Whirlpool (NYSE:WHR), which is the big appliance maker. They are trading at a forward p/e of 8 and a 2.8% dividend yield. And obviously, there are supply chain issues going on right now with most companies, as they manufacture things and need parts and components.
So again, we think earnings are likely to grow over time with Whirlpool from where they have been recently.
There you have a forward p/e of 12 and dividend yield of 3.7%. So that’s the inexpensive names with generous dividend yields above the current yield on the 30-year U.S. Treasury.”
Kovitz portfolio manager John Buckingham has many stock picks for investors:
“…We believe in broad diversification amongst our names, but also amongst market capitalizations. We’re equal opportunity stock pickers. So we don’t mind if a company has a large cap or a small cap, and we will go where the bargains are. These days, there are some small-cap companies in our mind that are also very attractive.
First name is a specialty retailer Big Lots (NYSE:BIG). There your NTM p/e is 9, 2.6% dividend yield. The stock has come down considerably.
The nice thing about Big Lots, in addition to being highly profitable these days, is management is buying back a mountain of stock — a significant portion of the shares outstanding has been retired and is likely to continue to be retired. And the balance sheet is in very good shape and, again, a single-digit forward p/e ratio.
Next company is the homebuilder MDC Holdings (NYSE:MDC).
We know that housing has gone through the roof, no pun intended.
But we still think that there is upside to be had in homebuilders here. Believe it or not, MDC is trading for a forward p/e ratio of 5 and the dividend yield is 3.3%.
We think MDC is a conservatively managed builder, not highly speculative. They generally cater more towards first-time buyers, as opposed to luxury buyers, and we think that, as the economy rebounds as we come out of COVID, there is going to be substantial demand for the folks buying their first home.
Next name would be a chip equipment maker, Kulicke and Soffa (NASDAQ:KLIC). They make semiconductor capital equipment.
That space has done very well, but Kulicke and Soffa has retreated from over $70 down to around $50. And frankly, there really hasn’t been anything to account for that, aside from investors souring a bit on the semiconductor space.
So Kulicke’s forward p/e is 8 and there you get a 1.1% dividend yield.
So again, a smaller-cap name that might be overlooked and that we think will deliver substantial earnings growth for the next few years.”
John Buckingham's Rule: Buy Undervalued Dividend Payers
November 10, 2020