Below are the 5 blue-chip dividend stocks hedge funds are buying. For a comprehensive list see 10 Blue Chip Dividend Stocks Hedge Funds are Buying.
5. McDonald’s Corporation (NYSE: MCD)
Fast Food chain McDonald’s Corporation (NYSE: MCD) was in 65 hedge fund portfolios at the end of the September quarter. Hedge funds are buying McDonald’s amid its dividend growth potential along with prospects for steady share price gain.
McDonald’s Corporation has raised dividends in the past 19 consecutive years and its average dividend growth rate stood around 8%. The company currently offers a quarterly dividend of $1.29 per share, which is equivalent to $5.16 annually. The strong business model and brand recognition have been helping in generating robust financial numbers. Its third-quarter comparable sales fell 2% year over year despite lockdowns and social distancing policies.
“Our third-quarter performance demonstrates the underlying resilience of the McDonald’s (MCD) brand. Our unique strengths, including our unrivaled drive-thru presence around the world, advanced delivery and digital capabilities, and marketing scale have become even more important during the pandemic. Our prior investments in these areas position us to further our competitive advantage and enable restaurant crew to continue to safely provide customers our great tasting food,” said McDonald’s President and Chief Executive Officer Chris Kempczinski.
4. Verizon Communications (NYSE: VZ)
Communication services company Verizon Communications (NYSE: VZ) is also considered the safest stock for dividend investors and it was in 65 hedge fund portfolios at the end of the September quarter. Verizon has increased its dividend every year over the past 14 years. It currently offers a quarterly dividend of $0.63 per share. The company returned almost $5.1 billion in cash dividend payments in the first half of 2020.
Its dividends are safe because financial numbers are offering complete cover to dividend payments. Its payout ratio based on income stands around 50%, meaning the company is returning only 50% of income to investors in the form of dividends. Here is what Mott Capital said about Verizon in a recent investor letter:
“Verizon (VZ) rose by 1.7% in the fourth quarter and by 9.2% for the year. Verizon is another company that should benefit as wireless subscribers upgrade their data plans from 4G to 5G. Additionally, the roll-out of 5G and the technology changes that it is likely to usher in will make having wireless data connections in the future more important than today. Again, Verizon appears to be a critical player in 5G and will continue to hold a place in the portfolio.”
3. Merck & Co. (NYSE: MRK)
The pharmaceutical company Merck & Co. (NYSE: MRK) has extensive dividend growth history and it is the third most favorite blue chip dividend stock among hedge funds.
It was in 80 hedge fund portfolios at the end of the September quarter. Its average dividend growth rate stands around 6.5% in the past five years. The company currently offers a quarterly dividend of $0.65 per share.
Its potential to generate sustainable growth in financial numbers has been supporting dividend growth. The company is returning only 43% of its income to shareholders in the form of dividends.
2. Johnson & Johnson (NYSE: JNJ)
Johnson & Johnson (NYSE: JNJ) is considered a defensive sock because of its 58 straight years of dividend growth. It is the second-best dividend stock hedge funds are buying.
It was in 82 hedge fund portfolios at the end of the September quarter. The dividends are fully backed by financial numbers. Its top and bottom-line growth are helping in raising dividends year over year. Its dividend payout ratio based on income stands around 50% while free cash flows are also offering a complete cover to dividend payments.
Johnson & Johnson is almost done with collecting data from the late stage trial of its COVID-19 single-dose vaccine candidate. The trial has 45,000 individuals enrolled and data from the process is expected by the end of January or early February. If the study shows the vaccine is effective and safe, the company plans to submit an emergency use authorization application to the U.S. Food and Drug Administration in February.
1. JPMorgan Chase & Co (NYSE: JPM)
The banking giant JPMorgan Chase & Co (NYSE: JPM) is the most favorite dividend stock among hedge funds as it was in 118 hedge funds portfolio at the end of the September quarter. The company has sustained its dividend in the pandemic year. The company currently offers a quarterly dividend of $0.90 per share.
JPM is among the few banks that have generated positive revenue growth in the September quarter while earnings per share of $3.79 topped analyst’s expectations by $1.17 per share. The strong revenue and earnings are the outcome of its diversified business model. The bank has strong confidence in its cash generation potential because it recently announced a $30 billion share buyback plan.
Please also see 10 Best High Dividend Stocks To Buy Now, Billionaire Nelson Peltz’s Favorite Stocks and 10 Best Food Stocks To Buy Now
