Microsoft Corporation (MSFT), Johnson & Johnson (JNJ) Among The 3 Highest-Yielding Stocks In this Fund

Donald Yacktman, the President and Co-Chief Investment Officer of Yacktman Asset Management, is managing around $17 billion in total assets. Over the past ten years, his Yacktman Fund has achieved an annualized gain of around 10.5%, while the more concentrated fund, the Yacktman Focused Fund, has been a bit better with an 11% annualized gain.

In this article, we will take a closer look at the highest yielding stocks, which account for more than 4% of the Focused Fund. The top three stocks are SYSCO Corporation (NYSE:SYY), Microsoft Corporation (NASDAQ:MSFT), and Johnson & Johnson (NYSE:JNJ).

A leading global wholesaler

Microsoft Corporation (MSFT)As of March 2013, Yacktman owned around 12 million shares in SYSCO Corporation (NYSE:SYY), accounting for around 5.77% of his total portfolio. Sysco could be considered the largest North American distributor of food with around 400,000 customers, including healthcare and educational facilities, lodging establishments, and restaurants.

There are five types of product categories, which accounted for 10% or more of its total revenue. They are canned and dry products (19%), fresh and frozen meats (19%), frozen fruits, vegetables, bakery (14%), dairy products (10%), and fresh produce (10%). The company derived most of its revenue from restaurant customers, representing as much as 63% of its total revenue.

As a wholesaler, SYSCO Corporation (NYSE:SYY) is expected to have thin profit margins. Thus, its return on equity is mainly backed by asset turnover. Indeed, over the past ten years, its net margin has fluctuated in the range of 2.62% to 3.18%, while its asset turnover was quite consistent in the range of 3.61 to 4.04. In 2012, with 2.65% in profit margin and an asset turnover of 3.61, its return on equity was nearly 23.9%.

What interests income investors is its consistently increasing dividend, from $0.42 per share in 2003 to $1.07 per share in 2012. At $35 per share, Sysco is worth around $20.4 billion on the market. The market values Sysco at around 8.9 times EV/EBITDA. The company is currently offering investors a dividend yield of 3.3%.

An attractive stock for value investors

Microsoft Corporation (NASDAQ:MSFT) is also a big position in the Yacktman Focused Fund. As of March 2013, Yacktman held 15.4 million shares in Microsoft, accounting for around 6.03% of the total portfolio. I think that Microsoft has been in the portfolio of value investors for years. However, its stock price hasn’t changed much in the past ten years, fluctuating in the range of $16 – $37 per share.

Since the beginning of 2010, Microsoft Corporation (NASDAQ:MSFT) has stayed in the range of $23 – $32 per share. In the past ten years, Microsoft has consistently generated positive and increasing cash flow, and paid consistently increasing dividends. Since 2003, its dividend has grown from $0.08 per share to $0.76 per share. In 2012, Microsoft produced $31.6 billion in operating free cash flow and $29.3 billion in free cash flow.

Microsoft is trading at around $29 per share, with a total market cap of $241.2 billion. The market values Microsoft Corporation (NASDAQ:MSFT)cheaply, at only 6.5 times EV/EBITDA and only 9.3 times forward earnings. What value investors like about Microsoft is its cash generating ability, good free cash flow yield at 12.1%, and a strong balance sheet with $68.3 billion in cash. Its dividend yield is around 3.2%.