David Burrows is president of Barometer Capital Management. His focus is on North American large caps.
JPMorgan Chase & Co.
Having recently met new banking capital requirements, JPM appears ready to begin returning additional capital to shareholders. It has weathered the financial crisis successfully and has been able to grow its franchise at the expense of weaker competitors. Over the next few years it is likely that JPM’s dividend payout will rise from the current 23 per cent of earnings toward the mid-30-per-cent range.
Home Depot Inc.
Home Depot allows investors to participate in the slowly recovering U.S. housing market. The company restructured and streamlined operations through the downturn and is using free cash-flow to buy back shares and raise dividends. As the market share leader supplying both do-it-yourself and professional contractors, HD has been able to grow the dividend 11 per cent per year over the past three years. HD recently announced plans to buy back $17-billion worth of common shares.
Johnson & Johnson
With 50 years of dividend growth, the 3.1-per-cent dividend has grown 8 per cent a year over the past five years. When coupled with a balance sheet rated more secure by Standard & Poor’s than a U.S. treasury bond, JNJ offers investors a highly predictable and rising income stream supported by a well-diversified portfolio of pharmaceuticals, medical devices and consumer brands.
Past picks: March 06, 2013
Total return: +21.26 per cent
Total return: +23.05 per cent
Total return: –9.13 per cent
Total return average: +11.73 per cent
Investors appear prepared to pay expanded earnings multiples for companies with strong balance sheets, sustainable free cash-flow and clear, well-defined dividend policies. Given the current slow-growth macroeconomic backdrop, the dividend growth theme continues be more attractive than fixed income investments, while posing less risk than more economically sensitive sectors. At Barometer, we are targeting equities with growing payouts and share buybacks.