July22,2019 BARRON’S 39
Mailbag
Mailbag
“ThepressurebroughtbyPresidentNixononFed
ChairmanArthurBurnsislegendary.” ALEXJ.POLLOCK,Washington
D.C.
SEND LETTERS TO:
[email protected]
publication,correspondencemustbearthe
writer’sname,address,andphonenumber.
Lettersaresubjecttoediting.
The Next Recession
To the Editor:
Like Abby Joseph Cohen, I also
thought that the next recession could be
similar to the 1990 recession, in that the
Fed preemptively eased, resulting in a
shallow stock selloff (“2019 Midyear
Roundtable:WheretoFindValueNow,”
July12).Backthenwewerejustbuilding
uptothecominginternetageandgovern-
ment debt was quite small. Today our
debt is very large, and states haven’t
savedenoughtopayjoblessclaims.Inthe
meantime, foreigners have stopped buy-
ing our Treasuries. We are currently
buildinguptotheinternet-of-thingsage,
whereIcansetmyhomethermostatfrom
my office, not quite the same magnitude
as the initial appearance of the internet.
Back then, Japan, our main competitor,
entered a prolonged slowdown; now
China is entering its slowdown, though
Chinaisaproportionallylargerbuyerof
the world’s goods than Japan was. Back
thentheFedhadroomtocutrates,which
itdidfrom9.7%to3%,buttodayweare
starting from just 2.4%. Any further at-
tempts at QE [quantitative easing] may
rousetheteapartybackintolife.Itwon’t
be the picnic of 1990 this time around.
GENERAMIREZ
On Barrons.com
Power Struggle
To the Editor:
DiscussingthetensionbetweenPresi-
dent Trump and Fed Chairman Powell,
StevenSearsdescribesitas“thishistori-
callyunusualrelationshipbetweentwoof
the world’s most powerful people”
(“Playing the Fed’s Next Rate Move,”
July11).Butit’snotsounusualforthere
to be serious tension between the hold-
ers of these two high offices.
President Truman was greatly pro-
vokedwhentheFedwantedtoraiseinter-
estrateswhilehewasfightingandfinanc-
ing the Korean War. He summoned the
entireFederalOpenMarketCommitteeto
theWhiteHouse—andtheycame—totell
themwhattodo.Buttheydidn’tfollowhis
instructions. This dispute ended up with
the resignation of the Fed chairman,
ThomasMcCabe.“McCabewasinformed
thathisserviceswerenolongersatisfac-
tory,” Truman later said.
President Lyndon Johnson was like-
wise made furious when Fed Chairman
WilliamMcCheseyMartin’sraisedinter-
estrateswhileJohnsonwastryingtofi-
nance both a war and big welfare pro-
grams.JohnsonsummonedMartintohis
Texas ranch, where he pushed him
around the living room, yelling in his
face,“BoysaredyinginVietnamandBill
Martin doesn’t care!”
The pressure brought by President
NixononFedChairmanArthurBurnsis
legendary.SaidNixon,“Irespect[Burns’]
independence.However,Ihopethatinde-
pendentlyhewillconcludethatmyviews
are the ones that should be followed.”
It’s hardly surprising that “two of
theworld’smostpowerfulpeople,”who-
ever holds those positions at the time,
should occasionally clash.
ALEXJ.POLLOCK,
R Street Institute,
Washington, D.C.
INCOME INVESTING n By Lawrence C. Strauss
Where the Payouts Are
T. Rowe Price Dividend Growth towers over its peers.
TOM HUBER HAS STEERED THE T. ROWE
Price Dividend Growth fund through a
lot of different markets with consistent
results over the past two decades.
The fund’s 15-year annual return of
9.56%isinthetop10%ofMorningstar’s
U.S. large-cap blend category—and has
outperformeditspeersby1.25percentage
points over that period.
Now,“thebigchallengeforaninvestor
isthatoldgrowthversusvaluequestion,”
says Huber, who has managed the fund
(ticker:PRDGX)since2000.“Growthand
momentum have outperformed value for
manyyears.Therelativevaluationslook
prettyextreme.”TheiSharesRussell1000
Valueexchange-tradedfund(IWD)trades
atnearly15timesexpectedearningsfor
thisyear,comparedwithnearly23times
for the growth index.
Huber’sfundtiltstowardgrowth,with
abiastowardhigherdividends.Theport-
folio’sdividend-growthratewasrecently
at 11.2%, ahead of the 8.6% for the S&P
500index.Thefund’syieldisinlinewith
the S&P 500’s 2%.
Still, Huber owns certain financial
stocks,manyofwhichhavedepressedval-
uationsowingtoconcernsabouttheyield
curve and an eventual deterioration of
credit quality. As of June 30, the fund’s
third-largest holding was JPMorgan
Chase (JPM), which yields 3.1%. The
stock trades at 11.3 times its consensus
2019profitestimateof$10.09ashare,be-
lowitsfive-yearaverageof11.8times,ac-
cording to FactSet.
JPMorgan and many other large
bankshadtheircapitalplansapprovedin
late June by the Federal Reserve under
theComprehensiveCapitalAnalysisand
Review. Shortly after getting the Fed’s
approval, JPMorgan said it intended to
raiseitsquarterlydividendby12.5%to90
cents and that it had been authorized to
buybackupto$29.4billionofitscommon
stock over the next 12 months.
Notallof theT.RowePricefund’shold-
ings have big yields. Danaher (DHR)
yields a low 0.5%, and UnitedHealth
Group (UNH) yields 1.6%—both below
the S&P 500’s average of about 2%.
“It’s the durability and visibility of
long-termgrowth,”saysHuber.“Bothof
thosecompaniesgrowtheir
dividends consistently.”
In June, UnitedHealth
declared a quarterly divi-
dend of $1.08 a share, up
20%from90cents.Danaher,aconglomer-
ate whose products include scientific in-
struments,boosteditsquarterlydividend
earlierthisyearbyapenny,or6%,to17
centsashare.Thestock’sone-yearreturn
is about 40%.
Huber expects that a rate cut by the
Fed’sOpenMarketCommittee—awidely
anticipated move—when it meets at the
endofthemonthwouldhelpmake“divi-
dendstocksmoreattractiveonarelative
basis as investors are looking for yield.”
NedDavisResearchwrotelastmonth
that“dividendpayershaveoutperformed
nonpayers after the first Fed rate cut”
datingtothemid-1970s.Ayearafterthe
firstcut,thepayersintheS&P500were
ahead of the nonpayers by 5%.
They also tracked higher-yielding
stocks versus those with faster dividend
growth.AfterthefirstFedcut,thegrow-
ers outperformed for a while but gave
most of it back by the end of those 12-
month periods, the analysts observed.
Dividend
Payments,
page M39
Steady Growth
The top six holdings of the T. Rowe Price Dividend Growth fund.
Recent Dividend Market 1-Year
Company / Ticker Price Yield Value (bil) ReturnMicrosoft / MSFT $137.08 1.3% $1,000.0 31.5%
Visa / V 179.31 0.6 392.0 29.3
JPMorgan Chase / JPM 115.12 3.1 373.4 7.3
Danaher / DHR 139.83 0.5 100.1 41.2
UnitedHealth Group / UNH 264.66 1.6 251.5 7.3
Pfizer / PFE 42.85 3.4 238.3 17.7
Stock data as of July 16. Top six holdings as of June 30. Sources: FactSet; Morningstar