In this article, we will be taking a look at the 10 best dividend stocks hedge funds are buying. To skip our detailed analysis of dividend investing, you can go directly to see the 5 Best Dividend Stocks Hedge Funds are Buying.
Dividend investing is something that must be done with care and great deliberation. Often times, income investors tend to simply opt for investing in the stocks paying the highest yields, in hopes of bringing in better returns and higher incomes to sustain themselves, and yet, research and analysts have proven time and again that merely looking at stock yields won’t cut it. It is necessary to take into account a range of factors when deciding the best dividend stocks for your portfolio, including the dividend yield, the P/E ratio, the number of years of consistent dividend increases, payout ratio, and often times, even hedge fund sentiment surrounding the stocks in question. Some of the notable stocks that have been gaining attention of core dividend investors as well as hedge funds include The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), among others.
Research conducted by Wellington Management has, for instance, shown how investors who think that investing in stocks with the highest yields may be making a big mistake. It was found that stocks offering high yields, but not the highest by any means, were seen to outperform other dividend stocks offering much higher yields. The research study divided the dividend stocks under question into quintiles, where the first quintile contained the 20% highest dividend payers, while the fifth quintile contained the 20% lowest dividend payers. Through this categorization, it was revealed that of the five quintiles established, stocks in the second quintile, paying high but not the highest dividends, performed better than all others, including those in the first quintile, outperforming 77.8% of the time.
One reason for the above result, apart from the obviously lower yields, is the lower payout ratio of the stocks in the second quintile. A stock’s payout ratio has been deemed to be one of the most important metrics to consider when analyzing performance for investment purposes. Simply put, a higher-yielding company will mostly be unable to sustain payouts, as compared to lower-yielding companies. The former also end up getting stuck in a situation where a major chunk of their earnings get paid out in dividends, resulting in the company being left with lesser money to invest in itself and its own growth. When comparing the payout ratios of companies in the first and second quintiles, Wellington Management thus found that those in the first quintile had an average dividend payout ratio of 74%, while those in the second quintile had a marginally lower dividend payout ratio of 41%. This correlation thus makes it easier to comprehend the outperformance of second quintile companies as compared to others.
Investing has become difficult by the day, even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Without further ado, let’s take a look at the 10 best dividend stocks hedge funds are buying.
Our Methodology
Insider Monkey tracks the data of about 873 hedge funds, and we have used this data to pick dividend stocks most popular among hedge funds today. For each stock, we have mentioned its yield and the number of hedge fund holders holding a stake in it, ranking them from the lowest to the highest number of hedge fund holders. Additionally, each stock has a dividend yield of at least 3%. Finally, we have used analysts’ ratings to determine which stocks are also favorably placed in analyst and investor circles.
Best Dividend Stocks Hedge Funds are Buying
10. Franklin Resources, Inc. (NYSE: BEN)
Number of Hedge Fund Holders: 30
Dividend Yield: 3.4%
Franklin Resources, Inc. (NYSE: BEN), an American multinational holding company, operates as a global investment firm. The company ranks 10th on our list of the best dividend stocks hedge funds are buying and is based in California. It is often referred to as Franklin Templeton when taken together with its subsidiary companies.
James Fotheringham, an analyst at BMO Capital, holds an Outperform rating on shares of Franklin Resources, Inc. (NYSE: BEN) as of this March. The analyst also upgraded the stock’s price target from $22 to $36.
In the fiscal third quarter of 2021, Franklin Resources, Inc. (NYSE: BEN) had an EPS of $0.96, beating estimates by $0.18. The company’s revenue was $2.17 billion, up 82.89% year over year and beating estimates by $43.73 million. Franklin Resources, Inc. (NYSE: BEN) has gained 12.72% in the past 6 months and 27.4% year to date.
By the end of the second quarter of 2021, 30 hedge funds out of the 873 tracked by Insider Monkey held stakes in Franklin Resources, Inc. (NYSE: BEN) worth roughly $205 million. This is compared to 31 hedge funds in the previous quarter with a total stake value of approximately $198 million.
Like The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), Franklin Resources, Inc. (NYSE: BEN) is a good stock to invest in.
9. Consolidated Edison, Inc. (NYSE: ED)
Number of Hedge Fund Holders: 30
Dividend Yield: 4%
Consolidated Edison, Inc. (NYSE: ED), often referred to as Con Edison or ConEd, is among the largest investor-owned energy and utility companies in the US. The company ranks 9th on our list of the best dividend stocks hedge funds are buying and is based in New York.
This May, an analyst at Barclays, Eric Beaumont, raised his price target on shares of Consolidated Edison, Inc. (NYSE: ED) from $69 to $75.
In the second quarter of 2021, Consolidated Edison, Inc. (NYSE: ED) had an EPS of $0.53, missing estimates by $0.09. The company’s revenue was $2.97 billion, up 9.27% year over year and beating estimates by $136.93 million. Consolidated Edison, Inc. (NYSE: ED) has gained 12.35% in the past 6 months and 8.41% year to date.
By the end of the second quarter of 2021, 30 hedge funds out of the 873 tracked by Insider Monkey held stakes in Consolidated Edison, Inc. (NYSE: ED) worth roughly $533 million. This is compared to 22 hedge funds in the previous quarter with a total stake value of approximately $196 million.
Like The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), Consolidated Edison, Inc. (NYSE: ED) is a good stock to invest in.
8. Kimberley-Clark Corporation (NYSE: KMB)
Number of Hedge Fund Holders: 37
Dividend Yield: 3.3%
Kimberley-Clark Corporation (NYSE: KMB) is a US-based multinational personal care corporation and manufacturing company. It mainly produces paper-based consumer products, like sanitary paper products and surgical and medical instruments. The company ranks 8th on our list of the best dividend stocks hedge funds are buying.
Steve Powers, an analyst at Deutsche Bank, raised his price target on shares of Kimberley-Clark Corporation (NYSE: KMB) at the start of July. The analyst also reiterated his Hold rating on Kimberley-Clark Corporation (NYSE: KMB) shares at the same time.
In the second quarter of 2021, Kimberly-Clark Corporation (NYSE: KMB) had an EPS of $1,47, missing estimates by $0.24. The company’s revenue was $4.72 billion, up 2.39% year over year and also missing estimates by $44.43 million. Kimberly-Clark Corporation (NYSE: KMB) has gained 4.59% in the past 6 months and 2.41% year to date.
By the end of the second quarter of 2021, 37 hedge funds out of the 873 tracked by Insider Monkey held stakes in Kimberly-Clark Corporation (NYSE: KMB) worth roughly $903 million. This is compared to 31 hedge funds in the previous quarter with a total stake value of approximately $1.3 billion.
Like The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), Kimberley-Clark Corporation (NYSE: KMB) is a good stock to invest in.
7. Cardinal Health, Inc. (NYSE: CAH)
Number of Hedge Fund Holders: 40
Dividend Yield: 3.7%
Cardinal Health, Inc. (NYSE: CAH), a US-based multinational healthcare company, is next on our list of the best dividend stocks hedge funds are buying. The company ranks 7th on our list and is based in Dublin, Ohio.
As of this August, George Hill, an analyst at Deutsche Bank, has a Hold rating on shares of Cardinal Health, Inc. (NYSE: CAH), alongside a price target of $51.
In the fiscal fourth quarter of 2021, Cardinal Health, Inc. (NYSE: CAH) had an EPS of $0.77, missing estimates by $0.43. The company’s revenue was $42.59 billion, up 16.07% year over year and beating estimates by $2.37 billion.
By the end of the second quarter of 2021, 40 hedge funds out of the 873 tracked by Insider Monkey held stakes in Cardinal Health, Inc. (NYSE: CAH) worth roughly $897 million. This is compared to 39 hedge funds in the previous quarter with a total stake value of approximately $967 million.
Like The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), Cardinal Health, Inc. (NYSE: CAH) is a good stock to invest in.
6. Walgreens Boots Alliance, Inc. (NASDAQ: WBA)
Number of Hedge Fund Holders: 41
Dividend Yield: 3.9%
Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is a retail and holding company based in Illinois. The company ranks 6th on our list of the best dividend stocks hedge funds are buying. It owns and operates the retail pharmacy chains names Walgreens and Boots, alongside a range of other pharmaceutical manufacturing, wholesale, and distribution companies.
As of this July, analyst Eric Coldwell at Baird holds an Outperform rating on shares of Walgreens Boots Alliance, Inc. (NASDAQ: WBA), alongside a $68 price target.
In the fiscal third quarter of 2021, Walgreens Boots Alliance, Inc. (NASDAQ: WBA) had an EPS of $1.38, beating estimates by $0.23. The company’s revenue was $34.03 billion, beating estimates by $526.6 million. Walgreens Boots Alliance, Inc. (NASDAQ: WBA) has gained 0.33% in the past 6 months and 18.41% year to date.
By the end of the second quarter of 2021, 41 hedge funds out of the 873 tracked by Insider Monkey held stakes in Walgreens Boots Alliance, Inc. (NASDAQ: WBA) worth roughly $1.1 billion. This is compared to 41 hedge funds in the previous quarter with a total stake value of approximately $1.1 billion.
Like The Coca-Cola Company (NYSE: KO), Morgan Stanley (NYSE: MS), Medtronic plc (NYSE: MDT), and Beckton, Dickinson and Company (NYSE: BDX), Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is a good stock to invest in.
Ariel Investments, an investment management firm, mentioned Walgreens Boots Alliance, Inc. (NASDAQ: WBA) in its fourth-quarter 2020 investor letter. Here’s what they said:
“Walgreens Boots Alliance, Inc. has been essentially flat during our brief holding period. We have successfully owned Walgreens in the past. Recently, its share price has been pressured on concerns that Amazon may enter the prescription drug distribution business. As recently as 2015, Walgreens was a market favorite, trading at more than 20 times forward earnings. The company was expected to grow in good times and bad. Walgreens’ new clinics, designed to treat day-to-day healthcare needs such as flu shots and children’s ear infections, could be part of the solution for expensive emergency room overcrowding. Finally, trends toward generic pharmaceutics that began in 2015 are still considered a positive, as pharmacies have more influence in directing customers toward particular generics than with a patient seeking a patented drug prescribed by a doctor. Walgreens will face new competition going forward, but with its current depressed valuation, we believe the threats are more than discounted in an attractive stock price.”
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Disclosure: None. 10 Best Dividend Stocks Hedge Funds are Buying is originally published on Insider Monkey.
