In this article, we discuss the 10 dividend stock picks by Martin Whitman’s Third Avenue. If you want to skip our detailed analysis of Whitman’s history, investment philosophy, and hedge fund performance, go directly to 5 Dividend Stock Picks by Martin Whitman’s Third Avenue.
Mutual fund maestro and legendary value investor Martin J. Whitman — passed away in 2018 — founded Third Avenue Management, an investment advisory firm that was initially dealing with individual accounts, but later became a thriving platform for mutual funds and various other investment vehicles. In 1990, Third Avenue’s esteemed Third Avenue Value Fund Institutional Class (NASDAQ:TAVFX) was launched, followed by Third Avenue Small-Cap Value Fund Institutional Class (NASDAQ:TASCX) in 1997, and Third Avenue Real Estate Value Fund Institutional Class (NASDAQ:TAREX) in 1998, Third Avenue International Value Fund (TAVIX) in 2001, and UCITS funds in 2009. These funds are still performing well, and are the backbone of Third Avenue’s investment strategy.
Third Avenue’s core strategy revolves around investing in value funds, small-cap funds, local real estate, and international real estate. To facilitate non-US investors, the firm launched its UCITS funds in 2009, catering to international clients. In 2014, Third Avenue launched its ‘Value Strategy’, which was focused on investing in approximately 20 companies. The Value Strategy was offered to institutional investors who qualified for the risk and rewards associated with such a concentrated strategy.
Martin Whitman was a Syracuse graduate, with a Bachelor’s in business administration. He completed his Master’s in economics from the New School of Social Research. After serving in the US Navy during World War II, Whitman built his career at different New York investment firms before establishing his first company, M.J Whitman & Co, in 1974, where he had his first big investment success. Later, he founded Third Avenue Management, where he was the chief investment officer until 2018, when he passed away, aged 93.
Martin Whitman of Third Avenue Management
As of the 13F filings for Q2, Whitman’s Third Avenue has $775.71 million in managed 13F securities and discretionary assets under management of $1.43 billion. The firm is focused on real estate, finance, consumer discretionary, and energy sectors, with the top ten holdings comprising 47.19% of the investment portfolio.
The top holdings in Whitman’s Third Avenue’s investment portfolio include Five Point Holdings, LLC (NYSE:FPH), Brookfield Asset Management Inc. (NYSE:BAM), Lennar Corporation (NYSE:LEN), Tidewater Inc. (NYSE:TDW), and Prologis, Inc. (NYSE:PLD).
Our Methodology
With this context in mind, let’s discuss 10 dividend stock picks by Martin Whitman’s Third Avenue.
We picked these dividend stocks from the Q2 portfolio of Third Avenue.
Why should we pay attention to hedge fund sentiment while choosing stocks? 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 86 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 S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 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.
Dividend Stock Picks by Martin Whitman’s Third Avenue
10. City Office REIT, Inc. (NYSE:CIO)
Third Avenue’s Stake Value: $572,000
Percentage of Third Avenue’s 13F Portfolio: 0.07%
Dividend Yield: 3.17%
Number of Hedge Fund Holders: 14
City Office REIT, Inc. (NYSE:CIO) is a real estate investment trust known for investing in top-notch office properties with strong economic fundamentals, mainly in the Southern and Western United States. The REIT owns 64 exclusively properties currently, spanning over roughly 5.6 million square feet of rentable space, in the US metropolitan cities of Dallas, Denver, Orlando, and Phoenix, among others. City Office REIT, Inc. (NYSE:CIO) offers a dividend yield of 3.17% to investors, making it one of the top dividends picks by Martin Whitman’s Third Avenue.
Third Avenue owns 46,000 shares in City Office REIT, Inc. (NYSE:CIO), which are currently valued at $572,000. Jim Simons’ Renaissance Technologies is the leading stakeholder in the REIT, with 1.75 million shares worth $21.82 million. Overall, 14 hedge funds were long City Office REIT, Inc. (NYSE:CIO) at the end of Q2.
9. Fidelity National Financial, Inc. (NYSE:FNF)
Third Avenue’s Stake Value: $10,997,000
Percentage of Third Avenue’s 13F Portfolio: 1.45%
Dividend Yield: 3.21%
Number of Hedge Fund Holders: 34
A Fortune 500 Company, Fidelity National Financial, Inc. (NYSE:FNF) is an American insurance provider to the real estate and mortgage industries. It is amongst one of the largest American companies according to FORTUNE’s 2021 list, and is traded as a Russell 1000 Component. Fidelity National Financial, Inc. (NYSE:FNF) is one of the top-ranked dividend stock picks by Martin Whitman’s Third Avenue.
Third Avenue holds stakes worth $10.99 million in Fidelity National Financial, Inc. (NYSE:FNF), which accounts for 1.45% of the firm’s 13F portfolio.
Snehal Amin’s Windacre Partnership is the biggest stakeholder in Fidelity National Financial, Inc. (NYSE:FNF), with 10.82 million shares valued over $470 million. Overall, 34 hedge funds were bullish on Fidelity National Financial, Inc. (NYSE:FNF) at the end of Q2, down from 39 in the previous quarter.
Here is what Merion Road Capital Management has to say about Fidelity National Financial, Inc. in their Q1 2021 investor letter:
“During the period I added to our position in Fidelity National Financial (“FNF”). FNF is the nation’s largest title insurer with 33% market share. It was built over the last 30 years by Bill Foley, who revolutionized the industry with his emphasis on eliminating bureaucracy, utilizing technology to streamline operations, and maximizing customer service. He is well-regarded as a savvy investor and consummate deal-maker having acquired and divested multiple entities both in title and ancillary fields. He continues to serve as the chairman of FNF with a personal stake in the company worth hundreds of millions.
While title insurance is technically insurance, it is a bit of a unique animal. Being that the insurer writes a policy based on past events, not unknowns in the future, losses are relatively small and predictable. The more data an insurer can analyze, the less likely they are to experience a claim; and the more efficiently they can analyze the data and process the application, the lower their costs will be. FNF has invested in automating its work stream through their ownership of NextAce (automated search), SoftPro (document production and closing), and multiple other cloud-based platforms. Due to these investments, FNF boasts industry leading margins and is able to attract more third party agents who can leverage their service offering.
Last year FNF acquired the outstanding interest in FGL Holdings (“F&G”), a fixed indexed and fixed rate annuity provider. Though this appears to be a financial rather than strategic acquisition, there should be some opportunities to grow the combined business. Notably, the acquisition afforded F&G an improved credit profile which has led to ratings upgrades. These upgrades allow F&G to address new distribution lines, such as in the bank market where FNF has strong relationships through their title and escrow business. The company announced that since launching in July 1st it had already achieved $500mm of sales in this channel (vs. full year sales of ~$4bn).
FNF is likely over-earning right now based on the recent spike in mortgage activity. Looking out to 2022 I estimate that earnings should step down to something a little shy of $5.00/sh. At current prices we are collecting a double digit earnings yield for a business with strong market positioning and a superb capital allocator. Last year they repurchased a bunch of stock in Q1 at depressed prices and have announced their intent to acquire another $500mm over the next 12 months.”
8. Southside Bancshares, Inc. (NASDAQ:SBSI)
Third Avenue’s Stake Value: $6,279,000
Percentage of Third Avenue’s 13F Portfolio: 0.83%
Dividend Yield: 3.39%
Number of Hedge Fund Holders: 8
The next stock on our list of the top dividend stock picks according to Martin Whitman’s Third Avenue is Southside Bancshares, Inc. (NASDAQ:SBSI), an American bank holding company established in 1960. The Texas-based Southside Bancshares, Inc. (NASDAQ:SBSI) has roughly $7.18 billion in assets, with 55 branches and 72 ATMs across Texas. The bank holding company offers a dividend yield of 3.39%, making it an attractive investment front for private clients and institutional investors alike.
Third Avenue owns 164,220 shares in Southside Bancshares, Inc. (NASDAQ:SBSI), amounting to $6.27 million. Jim Simons’ Renaissance Technologies is the largest stakeholder in Southside Bancshares, Inc. (NASDAQ:SBSI), with a $26.2 million stake.
On July 29, Southside Bancshares, Inc. (NASDAQ:SBSI) announced quarterly earnings for the second quarter of 2021. The EPS was reported as $0.65, missing estimates by -$0.04. Similarly, the revenue also failed to meet analysts’ expectations, falling short by -$0.93 million at $59.70 million.
7. Old Republic International Corporation (NYSE:ORI)
Third Avenue’s Stake Value: $27,658,000
Percentage of Third Avenue’s 13F Portfolio: 3.65%
Dividend Yield: 3.51%
Number of Hedge Fund Holders: 26
Old Republic International Corporation (NYSE:ORI) is an American insurance company, engaged in property insurance, titles, and deeds. The company is headquartered in Chicago, Illinois, and is one of America’s 50 largest shareholder-owned insurance businesses.
Third Avenue owns 1.11 million shares in Old Republic International Corporation (NYSE:ORI), valued at $27.65 million, representing 3.65% of the firm’s 13F portfolio. Third Avenue is the fifth largest stakeholder in the insurance corporation, with Jeffrey Altman’s Owl Creek Asset Management being the leading stakeholder in Old Republic International Corporation (NYSE:ORI). Owl Creek owns stakes worth $146.34 million.
Old Republic International Corporation (NYSE:ORI) is a leading stock in Whitman’s Third Avenue’s investment portfolio, just like Five Point Holdings, LLC (NYSE:FPH), Brookfield Asset Management Inc. (NYSE:BAM), Lennar Corporation (NYSE:LEN), Tidewater Inc. (NYSE:TDW), and Prologis, Inc. (NYSE:PLD).
6. Lazard Ltd (NYSE:LAZ)
Third Avenue’s Stake Value: $16,691,000
Percentage of Third Avenue’s 13F Portfolio: 2.2%
Dividend Yield: 3.63%
Number of Hedge Fund Holders: 18
Lazard Ltd (NYSE:LAZ) is an American firm engaged in investment banking, asset management, and related financial services, catering to institutional clients primarily. With offices in New York City, Paris, and London, Lazard Ltd (NYSE:LAZ) is the largest independent investment bank in the world, offering a 3.63% dividend yield to investors. Lazard Ltd (NYSE:LAZ) is a top dividend investing choice by Third Avenue.
Keefe Bruyette analyst Michael Brown upgraded Lazard Ltd (NYSE:LAZ) from Market Perform to Outperform, raising the price target from $53 to $58.
John W. Rogers’ Ariel Investments is the largest stakeholder in Lazard Ltd (NYSE:LAZ), with 7.65 million shares worth $346.4 million. Overall, 18 hedge funds were bullish on Lazard Ltd (NYSE:LAZ) at the end of June, down from 19 in the previous quarter.
Here is what Third Avenue Management has to say about Lazard Ltd in their Q4 2020 investor letter:
“Lazard Ltd. (“Lazard”) – During the quarter, the Fund initiated a position in Lazard, which houses two distinct businesses – financial advisory and asset management. Lazard is one of the formidable competitors in the global financial advisory industry, though Lazard is not involved in investment banking lines of business which are balance sheet-intensive or those which take on credit risk. Lazard’s advisory business is the world’s fifth largest by revenues, putting the company’s advisory business on par with those of far larger companies, such as Bank of America and Citi. Meanwhile, Lazard’s advisory revenues are meaningfully larger than the likes of Credit Suisse and UBS. While advisory revenues represent a low single-digit percentage of revenues for those peers, the figure is slightly more than 50% for Lazard. One further point of attraction for Lazard’s advisory business is its sterling reputation in restructuring advisory, which often shines in challenging environments in which insolvencies and near-insolvencies rise. The remaining portion of Lazard’s revenue is derived from the company’s asset management business, which operates completely independent of the advisory business and at last report had approximately $248 billion of assets under management. Lazard’s assets under management are focused on several niches in active management commanding management fees at the higher end of the industry, and the performance of its strategies has been sufficiently strong to have generated inflows of late, an unusual accomplishment for an active manager. The company in total is very well-capitalized and has a long history of controlling the relationship between compensation, its primary expense, and revenue. We believe that our purchase price implies a modest multiple of current operating earnings and that the operating environment can certainly improve, most likely as M&A activity continues to accelerate, but from other sources as well. External to the company however, it is clear that there are a number of companies that would almost certainly be very eager to purchase one or both of Lazard’s businesses. Consolidation is rampant in the asset management industry and several purchases of asset management companies of similar size to Lazard, though arguably of lower quality, have been announced recently. Separately, several European investment banks, including ones named earlier in this paragraph, have publicly declared a desire to grow their advisory businesses, especially in cross-border M&A capabilities, which is a core competency within Lazard. Using conservative estimates of prices we believe could be realized in the sale of Lazard’s businesses, the current share price appears to meaningfully undervalue the company.”
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Disclosure: None. 10 Dividend Stock Picks by Martin Whitman’s Third Avenue is originally published on Insider Monkey.
