TIP SHEET: Rochdale Fund Doesn't Mind 'Diamonds in Rough'

Date : 06/19/2012 @ 8:05AM
Source : Dow Jones News
Stock : Mcdonalds Corp. (MCD)
Quote : 176.12  0.0 (0.00%) @ 9:05AM

TIP SHEET: Rochdale Fund Doesn't Mind 'Diamonds in Rough'

City National Rochdale Dividend & Income Fund Class N (MM) (NASDAQ:RIMHX)
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(This article was originally published Monday)

--Rochdale Dividend and Income Fund seeks to deliver a steady return, and then some

--Goals are to earn solid income from securities, primarily through dividends, and provide stock returns

--The fund manager focuses on four areas to achieve goals

   By Karen Talley 

Stalwart dividend deliverers and the occasional diamond in the rough make the Rochdale Dividend and Income Fund (RIMHX) a vehicle that tries to deliver a relatively steady return, and then some.

The fund's goals are to earn solid income from securities, primarily through dividends, and also provide stock returns that make money for investors. To achieve these goals, fund manager David Abella focuses on four areas.

The stock must first have an attractive dividend yield-- generally above 3%--and can be a large-or mid-cap. The fund will also look for "diamonds in the rough" in the small cap field, but Mr. Abella notes these types of stocks don't tend to pay high dividends.

To reduce risk, the fund seeks to make sure holdings can continue paying dividends. "We look at how well the companies are doing, how big the dividend is relative to money the company is making and what are its business prospects going forward," Mr. Abella said. Meetings with management are also part of the drill.

The fund aims to hold companies that have a track record of raising dividends and show they are growing as the economy grows, Mr. Abella said.

Finally, Mr. Abella uses metrics like price to earnings and price to sales ratios and book values to make sure the stock is reasonably priced or even cheap.

The Rochdale Dividend and Income Fund rose 9.02% last year on a total return basis, while the Standard & Poor's 500 Index gained 2.1% on a total return basis. So far this year, the fund is up 2.8%, while the S&P 500 has gained 6.8%.

"Last year was a tricky one due to credit concerns in Europe and our strategy of buying stable, cash-generating companies held up strongly in an otherwise difficult environment," Mr. Abella said. Stocks that the fund picked up in 2011 and still holds include McDonalds Corp. (MCD), Northeast Utilities (NU) Philip Morris International Inc. (PM) and Mattel Inc (MAT).

This year, "the S&P 500 was off to a roaring start in [the] first quarter and the higher risk names moved higher," Mr. Abella said. "A lot of the higher quality dividend paying names just didn't move a lot. But we still like these names because they have a very steady yield and can do well in a better economy," which Mr. Abella feels is slowly and steadily improving.

Wal-Mart Stores Inc. (WMT) is a large holding of the fund, at 1.8% of its portfolio. "It's got good cash flow and it's a bit of a defensive play," Mr. Abella said. "If there are worries about the economy not improving at a faster rate, then Wal-Mart picks up sales from higher-priced competitors." Plus, Wal-Mart has a healthy 2.4% dividend yield, Mr. Abella said.

Dr. Pepper Snapple Group (DPS) is a stock the fund has been buying this year. "In baseball terms, it's trying for just a base hit," Mr. Abella said. "It's not a stock that necessarily will be a home run but we see it providing a solid return." Mr. Abella also said the stock's 3.3% yield will likely grow because the company is putting a focus on its dividend program.

B&G Foods Inc. (BGS) "was a diamond in the rough for us, but is now a steady performer," Mr. Abella said. The food company owns brands including Cream of Wheat, Ortega taco shells, Molly McButter and B&M beans. "They focus on holding the top brand in their category and are run very efficiently," Mr. Abella said. "Plus, they have a very good dividend yield of 4.5%."

National Retail Properties Inc. (NNN) is a Real Estate Investment Trust that owns single structures and rents them to operations like convenience stores, gas station or fast food outlets. The REIT, with a 5.8% dividend yield, holds almost 1,500 properties in 47 states, "so they spread their geographic and tenant risk," which makes the company a safer and more dependable proposition, Mr. Abella said.

(Karen Talley covers the retail industry for Dow Jones Newswires. She can be reached at 212-416-2196 or by email at karen.talley@dowjones.com)

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