In this article we discuss the 5 best dividend stocks according to billionaire Chase Coleman. If you want to read our detailed analysis of Coleman’s history and hedge fund performance, go directly to the Best Tech and Dividend Stocks to Buy According to Billionaire Chase Coleman.
5. Apollo Global Management, Inc. (NYSE: APO)
Dividend Yield: 3.67%
No. of hedge Fund Holders: 30
Apollo Global Management, Inc. (NYSE: APO) is an investment firm that focuses on alternative types of investments. This focus is its ticket into Chase Coleman’s list of best tech and dividend stocks. The company recently announced plans to acquire Verizon Communications Inc. (NYSE: VZ) for $5 billion. The acquisition will include Yahoo and AOL.
Verizon will maintain 10% ownership in the media business which will operate as Yahoo after the deal is finalized. Verizon bought out AOL in 2015 for $4.4 billion Yahoo for $4.5 billion in 2017.
Apollo Global Management, Inc. (NYSE: APO) portfolio ballooned to $461.1 billion in Q1 as its private equity assets continued to gain value. The company’s total revenue in Q1 grew to $2.29 billion from $1.30 billion revenue in the previous quarter. It also performed significantly better than the $1.47 billion Q1 2020 revenue. Management fees in Q1 2021 amounted to $457.2 million, a notable gain from the $446.9 million earned from management fees in the previous quarter.
In its Q3 2020 investor letter, RiverPark spoke about Blackstone Group Inc (NYSE:BX) and Apollo Global Management Inc. (NYSE:APO) stocks. Here is what RiverPark said:
“Blackstone & Apollo: Our alternative asset managers BX and APO were top detractors for the quarter as their results were affected by the COVID shutdowns, which have delayed the selling of assets and the realization of performance fees. Both companies (as well as our third alternative asset manager KKR) continue to generate consistently strong fee-related earnings (BX’s and APO’s fee-related earnings increased 28% and 9%, respectively, in the second quarter) and grow their assets under management (AUM) at impressive rates (BX’s and APO’s fee-generating AUM increased 12% and 45%, respectively, year over year).
While both face a temporary slowdown in investment realizations and near-term mark-to-market headwinds from the current crisis, most of their capital is long-dated or even permanent, most of their fees, which are high-margin and recurring, are not sensitive to the market, and both have billions of dollars of capital available to invest ($156 billion and $47 billion at the end of 2Q for Blackstone and Apollo, respectively). We continue to view BX and APO as two of the better risk-reward holdings in our portfolio, offering substantially better-than-average growth and cash flow fundamentals, and world class management teams, as well as dividend yields of 2.8% and 4.2%, respectively.”
4. Adobe Inc. (NASDAQ: ADBE)
Value: $83,770,000
No. of hedge Fund Holders: 114
Adobe Inc. (NASDAQ: ADBE) is a U.S-based company with a solid reputation for its solutions used in animation, photography, graphics, and multimedia. However, its operations now include the provision of software for digital marketing management.
Adobe recently secured a partnership through which it will integrate its digital commerce platform with the ShopRunner e-commerce expedited delivery platform owned by FedEx Corporation (NYSE: FDX). The integration will make it possible for sellers on Adobe’s platform to provide free two-day shipping and other logistics perks. Adobe will also provide extra sales data to sellers who select FedEx, allowing them to streamline their operations.
Adobe Inc. (NASDAQ: ADBE) generated $3.91 billion revenue in the first quarter of its fiscal 2021 after a 26% YoY gain. Its GAAP diluted earnings per share for the same period was $2.61, while the Non-GAAP EPS was $3.14. Creative revenue soared to $2.38 billion during the quarterly period, while the digital media segment generated $2.86 billion in revenue. The document cloud segment’s revenue figure for the same period was $480 million, which was 37% higher YoY.
Palm Capital, in their Q1 2021 investor letter, mentioned Adobe Inc. (NASDAQ: ADBE). Here is what Palm Capital has to say about Adobe Inc. in their letter:
“Adobe has a near-monopoly in content creation software with dominant applications including Photoshop, Lightroom and Illustrator that are critical in the lives of creative professionals. These applications are not only the best in the industry but also have high switching costs as it takes designers many years to become adept at using them. This investment of time is a sunk cost and makes it costly for designers to switch to an alternative. Additionally, as most creative professionals use Adobe’s suite of products it also has a network effect advantage – creative professionals use it because most other creative professionals do.
This creates stickiness of revenue, the visibility of which is enhanced by the fact that more than 90% of Adobe’s overall revenue is subscription-based and a large portion of this is paid in advance.
As Adobe’s programs have already been developed and they are now largely distributing this over the internet, the company’s gross profit margins are a towering 85%.
Adobe also has great economics. It is capital light. This means that it does not need physical assets like machinery, property, or stock to operate. As its assets are intangible, it does not need to take on debt to finance them. And its marginal cost of serving additional customers is minimal. The company is highly cash generative, not only because some of its revenue is received upfront, but also because it pays a large portion of salaries with shares and share options. This is evident from its balance sheet – it has had a large net cash position for seven of the past ten years. Furthermore, investments in its intangible assets are expensed rather than capitalized resulting in a low tax burden relative to typical capital-intensive businesses.
Finally, Adobe has lots of room for growth. The shift to digital creates a strong underpin for demand growth over the long term. And Adobe’s switching costs give it the power to grow revenue by increasing prices. Additionally, the subscription model is growing Adobe’s market in several ways. Firstly, it makes it affordable for small businesses, opening a new market to Adobe. Secondly, by freeing up IT capex and fixed costs, the model also makes it more affordable for large businesses, incentivizing them to take on pricier options. Thirdly, as the company is not updating its products that were sold under the licence model, the subscription model is beginning to capture many non-compliant users.
Over the next ten years, we expect Adobe’s sales to more than double and its free cashflow margin to expand to almost 40%.
These characteristics make Adobe an exceptional business and it is one half of the reason we have been invested for nearly three years.
This example as well as our examples of the aggregators earlier illustrates the impact that the internet has had in not only creating more profitable, less capital-intense businesses but also in allowing businesses to grow to much larger sizes at a much faster pace than before. It partly explains the pace with which new businesses are reaching $100bn valuations whether on public or private markets.”
3. salesforce.com, inc. (NYSE: CRM)
Value: $509,304,000
No. of hedge Fund Holders: 97
salesforce.com, inc. (NYSE: CRM) is a leading provider of CRM services and solutions. CRM has remained one of the most lucrative segments in the last decade and should remain that way as the roots of digitization continue to spread.
Salesforce generated $5.42 billion in quarterly revenue in Q3 2020, a 20% gain compared to the revenue figure reported in Q3 2019. The performance favored a revenue guidance revision for FY21 to $21.11 billion from $21.10 billion. It also raised its Q1 FY22 revenue guidance to$5.715 billion from the previous $5.680 Billion.
Oakmark Equity and Income Fund, in its Q1 2021 investor letter, mentioned salesforce.com, inc. (NYSE: CRM). Here is what Oakmark Equity and Income Fund has to say about salesforce.com, inc. in its letter:
“Salesforce was the final new portfolio addition. The company is executing a tried-and-true strategy in the software space of buying young, best-of-breed software companies and then driving these products into their massive installed base. Companies like Tableau, ExactTarget and Mulesoft have considerably more reach in the hands of Salesforce than they could have achieved as standalone companies. However, when Salesforce announced a deal to buy Slack Technologies, the market reduced Salesforce’s pre-announcement market capitalization by roughly $40 billion, effectively offering investors the opportunity to get Slack for free. We believe management should be given the benefit of the doubt. Slack has the potential to be a game-changing technology with a huge addressable market, and management’s track record on acquisitions has been superb. We estimate that the company’s shares now trade at a material discount to industry peer Microsoft, despite showing nearly twice the growth, giving investors the chance to own a top-tier software company at a bottom-tier multiple.”
2. Sea Limited (NYSE: SE)
Value: $1,836,535,000
No. of hedge Fund Holders: 115
Sea Limited (NYSE: SE) is a Singapore-based holding company that is relatively new considering that it has only been around since 2019. The company owns the Garena, SeaMoney and Shopee brands.
Sea Limited’s Q4 2020 financial report revealed that the company earned $1.6 billion revenue, delivering an impressive 102% revenue growth YoY. Its Q4 gross profit was $533.7 million. The company’s full year 2020 revenue was $4.4 billion, representing a 101% gain compared to the revenue figure that Sea Limited reported for FY 2019.
The company’s impressive revenue figures in FY20 were mainly generated by Garena and Shopee. The former experienced an 111% YoY increase in bookings which generated $1 billion in Q4 alone and $3.2 billion throughout the year.
Credit Suisse raised its price target for Sea Limited (NYSE: SE) earlier this year. The adjustment was based on the expectation that gaming revenue will grow at a moderate pace, thanks to Free Fire popularity. Credit Suisse adjusted its price target for the stock from $225 to $285.
In its Q4 2020 investor letter, Hayden Capital mentioned Sea Limited (NYSE: SE). Here is what Hayden Capital has to say about Sea Limited in its letter:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee tends to enter markets with a bottoms-up approach. Instead of going after urban, high disposable income users first (of which these hedge fund professionals were certainly part of), they tend to initially go after those with only a few hundred or thousand USD of annual disposable income. These users tend to reside outside of major cities, have fewer choices for recreational pastime (thus turning to gaming, short-form videos, or online shopping for entertainment), can’t afford “branded” items and thus are willing to take a chance on cheaper (but still good quality) un-branded goods, and are willing to wait several weeks for it to be shipped from Asian factories.
Anyone who has studied Pinduoduo (Nasdaq: PDD) in China, will recognize this strategy and just how large of a market these consumers can be. As Shopee gains popularity in a market, they will then start to slowly move “up-market”, and cater to more urban and higher-income consumers. They’ve already followed this exact strategy in Southeast Asia, and this is the point they’ve reached in Brazil over the past year.
Shopee made its first big social push last fall, hiring over a dozen influencers with 1M+ followers to promote Shopee’s Black Friday sale (LINK). In addition, they also released their first Brazilian TV commercial last year.
It seems these initiatives are working. Shopee now consistently ranks in Brazil’s top 5 apps (while sister app Free Fire, is also the #1 grossing app). In addition, Shopee also moved Pine Kyaw (LINK), one of their key lieutenants in Vietnam who successfully helped Shopee fight off competitors (Tiki, Lazada, Sendo), to Brazil last May.
For the past year, the company has insisted publicly that the Brazil initiative is still a “test” initiated by the cross-border team. While this may have been true at first, it’s clear this is no longer a “test”, but rather a strategic focus for Shopee and posed to be the next battleground. It’s likely the company has chosen to remain tight-lipped so as to not tip off competitors, while they quietly “position the troops” to prepare for a larger assault.
For example, Shopee is also starting to allow local sellers to join the platform and list their local inventory (LINK). By definition, this is no longer a cross-border initiative (i.e. allowing their Southeast Asian sellers to sell to Brazilian consumers, and then shipping the goods directly from Asia. This is the model Aliexpress follows.).
This is the start of a localized marketplace. And similar to their early days in Southeast Asia, the goal is to reach the “tipping point” at which the marketplace becomes self-sustainable (this concept is discussed in our Q1 2019 letter; LINK). The weapons of choice in reaching critical mass: social media influencers to drive rust & awareness, free shipping & discounts to acquire / convert these new customers, and gamification of shopping to drive continued engagement, habit building, and repeat purchases.
Given all of this, and the strong (but early) traction in the local Shopee Brazil marketplace, investors need to keep an eye on this development. It is the smallest GMV contribution among Shopee’s countries currently, but a large inherent call option in the valuation. Something that so far, seems greatly underappreciated. I suspect at some point in the near future, Shopee’s management team will disclose more on the initiative, and at which point investors will be surprised by how Shopee managed to quietly build one of the largest marketplaces in Brazil.”
1. Zoom Video Communications, Inc. (NASDAQ: ZM)
Value: $ 487,418,000
No. of hedge Fund Holders: 59
Zoom Video Communications, Inc. (NASDAQ: ZM) is one of the best tech stocks to buy in Chase Colman’s Q4 portfolio.
The company generated $882.5 million in revenue in Q4 2020 with an impressive 369% YoY gain. Its revenue for the entire fiscal year 2020 was $2.6 billion, representing a 326% YoY gain. Zoom’s GAAP net income from operations in Q4 2020 was $256.1 million, a 2327% gain compared to Q4 2019. Its operations GAAP income for the full year was $659.8 million, a whopping 5,097% gain YoY.
Zoom Video Communications, Inc. (NASDAQ: ZM) has added new features to ensure more growth such as Immersive View, which enables virtual backgrounds. It also launched a $100 million Zoom Apps fund whose aim is to facilitate further development of the platform, including developing more apps and better integration.
You can also take a peek at Top 15 Dividend Stocks With Upside Potential and 10 Blue Chip Dividend Stocks Hedge Funds Are Buying.
