In this article, we discuss the 5 best dividend stocks to buy according to Diamond Hill Capital. If you want to read our detailed analysis of the hedge fund’s performance and investment strategy, go directly to the 10 Best Dividend Stocks to Buy According to Diamond Hill Capital.
5. Pfizer Inc. (NYSE:PFE)
Diamond Hill Capital’s Stake Value: $477,807,000
Pfizer Inc. (NYSE:PFE) is a multinational pharmaceutical and biotech company headquartered in New York. On June 23, the company declared a quarterly dividend of $0.40 per share, in line with its previous dividend. The company maintains a 12-year streak of consistent dividend growth, becoming one of the best dividend stocks in Diamond Hill’s portfolio. As of August 31, the stock’s yield came in at 3.49%.
Diamond Hill Capital started investing in Pfizer Inc. (NYSE:PFE) during the fourth quarter of 2010, owning shares worth over $194 million. In Q2 2022, the hedge fund owned over 9 million PFE shares with a total value of $478 million. The company represented 2.08% of the fund’s portfolio.
At the end of Q2, 70 hedge funds tracked by Insider Monkey owned stakes in Pfizer Inc. (NYSE:PFE), down from 79 in the previous quarter. The total value of those stakes was over $2.8 billion. Ken Griffin and Cliff Asness were some of the company’s major stakeholders in Q2.
ClearBridge Investments mentioned Pfizer Inc. (NYSE:PFE) in its Q4 2021 investor letter. Here is what the firm had to say:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks. (Click here for the full text)
4. Bank of America Corporation (NYSE:BAC)
Diamond Hill Capital’s Stake Value: $509,009,000
Bank of America Corporation (NYSE:BAC) is a multinational investment bank and financial services company that provides services in credit cards, loans, and mortgages. Diamond Hill Capital owned over 16.3 million shares in the company on June 30, boosting its stake by 8% during Q2. The fund’s total stake in the company amounted to over $509 million, which represented 2.22% of its 13F portfolio.
On July 20, Bank of America Corporation (NYSE:BAC) hiked its quarterly dividend by 5% to $0.22 per share. This was the company’s ninth consecutive year of dividend growth. As of August 31, the stock’s dividend yield came in at 2.58%.
In July, RBC Capital maintained its ‘Outperform’ rating on Bank of America Corporation (NYSE:BAC), acknowledging the company’s diversified business model in the current economic landscape. The firm further appreciated the company’s strong revenue growth.
As of the close of Q2, 99 hedge funds tracked by Insider Monkey owned stakes in Bank of America Corporation (NYSE:BAC), the same as in the previous quarter. Those stakes were collectively valued at nearly $36 billion. Berkshire Hathaway was the company’s leading stakeholder in Q2, owning an ownership stake worth over $31 billion.
Miller Value Partners mentioned Bank of America Corporation (NYSE:BAC) in its Q1 2022 investor letter. Here is what the firm had to say:
“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.
A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).
We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”
3. PepsiCo, Inc. (NASDAQ:PEP)
Diamond Hill Capital’s Stake Value: $538,121,000
An American multination food and snack company, PepsiCo, Inc. (NASDAQ:PEP) is one of the strongest dividend payers in the U.S. market. In 2022, the company extended its dividend growth streak to 50 years, and has a 5-year dividend CAGR of 7.39%. The company currently pays a quarterly dividend of $1.15 per share, with the stock’s dividend yield coming in at 2.65% as recorded on August 31.
PepsiCo, Inc. (NASDAQ:PEP) was the fourth-largest holding of Diamond Hill Capital on June 30, representing 2.35% of its portfolio. The hedge fund owned over 3.2 million shares in the company with a total value of $538 million. The firm has been investing in the company since 2010.
In August, Morgan Stanley mentioned PepsiCo, Inc. (NASDAQ:PEP) in its investors’ note, expecting the company to outperform in the upcoming quarters and maintaining its ‘Overweight’ rating on the stock.
With stakes worth over $5.2 billion, 65 hedge funds tracked by Insider Monkey’s database owned positions in PepsiCo, Inc. (NASDAQ:PEP) in Q2. In the previous quarter, 62 hedge funds owned PEP stakes worth $4.86 billion.
ClearBridge Investments mentioned PepsiCo, Inc. (NASDAQ:PEP) in its Q2 2022 investor letter. Here is what the firm had to say:
“Also in the stable and predictable cash flow camp, though with a very different business model, global food and beverage company PepsiCo (NYSE:PEP) reported very strong organic growth in the first quarter, driven by healthy price/mix, and raised revenue guidance, while holding EPS guidance. Notably, its beverage business showed expanding margins.”
2. ConocoPhillips (NYSE:COP)
Diamond Hill Capital’s Stake Value: $591,671,000
ConocoPhillips (NYSE:COP) is a Texas-based natural gas liquids company that specializes in the exploration and production of hydrocarbons. In August, Barclays raised its price target on the stock to $153 with an ‘Overweight’ rating on the shares, highlighting the company’s maintenance of its free cash flow yields.
ConocoPhillips (NYSE:COP) does not hold a dividend growth track record but the company has paid uninterrupted dividends to shareholders since 1993. The company currently pays a quarterly dividend of $0.46 per share and shares have an attractive dividend yield of 4.09% as of August 31.
Diamond Hill Capital opened its position in ConocoPhillips (NYSE:COP) during the first quarter of this year, purchasing shares worth $703 million. In Q2, the hedge fund slashed its position in the company by 7%, which dropped its total COP stake to $592 million in value. The company represented 2.58% of the firm’s portfolio.
At the end of Q2, 71 hedge funds tracked by Insider Monkey owned stakes in ConocoPhillips (NYSE:COP), up from 67 in the previous quarter. The collective value of those stakes was over $2.42 billion. With over 6.7 million shares, Fisher Asset Management owned the largest position in the energy company in Q2.
Diamond Hill Capital mentioned ConocoPhillips (NYSE:COP) in its Q1 2022 investor letter. Here is what the firm had to say:
“We redeployed capital into ConocoPhillips (NYSE:COP), which was trading at a discount to our estimate of intrinsic value and is well positioned over the long run due to its low-risk asset base.”
1. Abbott Laboratories (NYSE:ABT)
Diamond Hill Capital’s Stake Value: $639,592,000
Abbott Laboratories (NYSE:ABT) is a global healthcare company that specializes in medical devices and conducts related research. The company was the second-largest holding of Diamond Hill Capital in Q2. The hedge fund owned over 5.8 million shares in the company, valued at nearly $640 million. It accounted for 2.79% of the fund’s 13F portfolio.
Abbott Laboratories (NYSE:ABT) currently offers a quarterly payout of $0.47 per share, raising it by 4% in December 2021. With that increase, the company joined the list of Dividend Kings that have raised their dividends for over 50 years. As of August 31, the stock’s dividend yield stood at 1.82%.
In July, BTIG reiterated its ‘Buy’ rating on Abbott Laboratories (NYSE:ABT), presenting a long-term positive stance on the MedTech industry.
At the end of Q2, 61 hedge funds tracked by Insider Monkey owned stakes in Abbott Laboratories (NYSE:ABT), down from 68 in the previous quarter. Those stakes held a consolidated value of over $3.6 billion.
You can also take a look at Ray Dalio’s Bridgewater Associates Portfolio: Top 10 Dividend Stocks and the 10 Best Renewable Energy Stocks to Buy and Hold for the Next 10 Years
