The dividend investor - Bob Shearer

The dividend investor By DAVID K. RANDALL

It’s a great time to be buying stocks that pay dividends. Nearly a quarter of the companies in the S&P 500 have announced that they’ll raise their dividends this year. That puts investors in an enviable position – they have to sort through a lot of big-paying companies and decide which ones to buy.

Bob Shearer, who manages the $13.3 billion Blackrock Equity Dividend Fund, talked with The Associated Press about his strategy and expectations for dividends. During the 10 years he has run the fund, he has beaten the S&P 500 by an average of 3.7 percentage points a year. Its top holdings include Chevron, ExxonMobil and General Electric.

Which industries have the most appealing dividends?

Shearer says that multinational companies that do business in emerging markets are in the best position to raise dividends. “So we prefer companies in the mining and industrial sectors,” he says. Companies like Caterpillar and Deere have booming businesses in China, Brazil and other countries that are growing, he says.

When will dividends return to their pre-2008 levels?

“We have looked at the dividend cuts during the financial crisis and found that for the most part, they were limited to just a few sectors – primarily the consumer discretionary sector and obviously financials,” Shearer says. “So, for many sectors like energy, materials and industrials, we are seeing some dividends even hitting new highs.”

Your portfolio is relatively light on financial companies. Why?

Shearer is concerned about new regulations that limit banks’ revenue from overdraft charges, late payment penalties and other fees. Without those money makers, “the ultimate earnings power of some of these companies is somewhat unclear,” he says. But he does like some financial companies. JPMorgan Chase is one of his fund’s top holdings because the company is well managed. His fund also owns Wells Fargo, which Shearer thinks will make more money as it completes the conversion of former Wachovia branches into Wells Fargo branches.

Was there anything surprising about the dividend increases this quarter?

“I think one surprise that we are seeing are technology companies initiating dividends for the first time, as Cisco announced last year,” Shearer says. “Technology companies typically like to reinvest back into their business for growth. However as these companies mature, they can now think about returning some cash to shareholders in the form of dividends.”