Hedge funds are generally associated with the use of derivatives, leverage, and investments in high-growth stocks. However, contrary to popular perception there are several hedge funds that don’t dabble in derivatives at all, don’t use leverage, and allocate a large part of their portfolios to dividend stocks. Keeping that in mind, we at Insider Monkey decided to analyze the portfolio data of the more than 700 funds we track as of Juen 30 and find the most popular dividend stocks held by hedge funds. In previous posts we have highlighted the top 5 ultra-high dividend stocks owned by hedge funds and the 5 popular energy sector dividend stocks among hedge funds. In this article we are going to reveal the five most popular high dividend stocks among hedge funds.
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An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like hedge funds can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 60 percentage points and returning 118%, while hedge funds themselves have collectively underperformed the market (read the details here).
5. Verizon Communications Inc. (NYSE:VZ)
Investors with Long Positions (as of June 30): 62
Aggregate Value of Investors’ Holdings (as of June 30): $2.77 Billion
The popularity of the telecommunications behemoth Verizon Communications Inc. (NYSE:VZ) among hedge funds increased during the second quarter, even though the stock remained relatively flat. The number of hedge funds that counted the company as one of their investments grew by 3, while the aggregate value of hedge funds’ holdings saw a rise of $563 million during that period. Verizon Communications Inc. (NYSE:VZ) is one of the few stocks that has consistently paid dividends to its investors over the past 25 years, including during the periods when the dot-com crash and financial crisis were going on. The company currently pays out a quarterly dividend of $0.55, which translates into an annual dividend yield of 4.78%. Warren Buffett‘s Berkshire Hathaway was the largest shareholder of Verizon Communications Inc. (NYSE:VZ) among the funds we track, owning 15 million shares at the end of June.
4. Kinder Morgan Inc (NYSE:KMI)
Investors with Long Positions (as of June 30): 64
Aggregate Value of Investors’ Holdings (as of June 30): $2.44 Billion
After a 7.7% fall during the second quarter and a more than 30% drop over the last four months, energy infrastructure company Kinder Morgan Inc (NYSE:KMI) has become one of the most lucrative dividend-paying large-caps, with a quarterly dividend of $0.49, representing an annual dividend yield of 6.01%. Even though the number of hedge funds that owned the stock declined by two, the aggregate value of investments in the company by the funds in our database grew by $855 million during the second quarter. On August 20, analysts at Jefferies Group reiterated their ‘Hold’ rating on the stock, with a $39 price target, which represents a potential 19.5% upside to the stock’s current trading price. Robert Henry Lynch‘s Aristeia Capital more than doubled its stake in Kinder Morgan Inc (NYSE:KMI) during the second quarter, and as of June 30 held over 11.54 million shares of the company.
3. Macquarie Infrastructure Corp (NYSE:MIC)
Investors with Long Positions (as of June 30): 69
Aggregate Value of Investors’ Holdings (as of June 30): $2.06 Billion
Macquarie Infrastructure Corp (NYSE:MIC) was the third-most popular high dividend stock among hedge funds as of June 30, even though the number hedge funds owning the stock dipped by one and the aggregate value of hedge funds’ holdings declined by $233 million during the April-June period. After raising its dividend for six quarters in a row, the company yet again raised its dividend to $1.11 recently. This $1.11 quarterly dividend represents an annual dividend yield of 5.70%. Macquarie Infrastructure Corp (NYSE:MIC)’s stock was on a continuous uptrend from the beginning of the year until mid-June. However the rally came to an end in late-June and the stock ended the second quarter up by a meager 1.7%. On July 19, the company announced a change in the conversion ratio applicable to its 2.875% Convertible Senior Notes, due 2019 . The increase in the conversion ratio to 11.8273 shares of common stock per $1,000 principal amount effective July 15, 2015 reflected the impact of the dividends the company paid during 2014. One of Macquarie Infrastructure Corp (NYSE:MIC)’s largest shareholders, Richard McGuire‘s Marcato Capital Management, continued to own over 3.5 million shares of the company at the end of June.
2. Williams Companies Inc (NYSE:WMB)
Investors with Long Positions (as of June 30): 86
Aggregate Value of Investors’ Holdings (as of June 30): $10.64 Billion
Thanks to it rejecting a $53.1 billion buyout bid by Energy Transfer Equity LP (NYSE:ETE) in late-June, shares of Williams Companies Inc (NYSE:WMB) ended the second quarter up by almost 15%. Even after this rejection, Energy Transfer Equity LP (NYSE:ETE) didn’t end its pursuit of Williams Companies Inc (NYSE:WMB), announcing a hostile takeover bid for the company in July. Event-focused hedge funds seem to have lapped up this opportunity surrounding Williams Companies Inc (NYSE:WMB), as the hedge fund ownership of the company went up by 26 and the aggregate value of investments by hedge funds increased by $4.02 billion during the April-June period. Williams Companies Inc (NYSE:WMB) currently pays a quarterly dividend of $0.59 and its annual dividend yield stands at an impressive 4.82%. Recent reports have suggested that Spectra Energy Corp. (NYSE:SE), a company half the size of Williams Companies Inc (NYSE:WMB), has also made a bid for it. James Dinan‘s York Capital Management was one of the hedge funds that initiated a stake in Williams Companies Inc (NYSE:WMB) during the second quarter by buying slightly over 5.76 million shares of the company.
1. General Motors Company (NYSE:GM)
Investors with Long Positions (as of June 30): 104
Aggregate Value of Investors’ Holdings (as of June 30): $5.78 Billion
After dropping over 10% during the second quarter, shares of General Motors Company (NYSE:GM) recently broke the $30 mark for the first time in two years and are still trading below it. Surprisingly enough, this fall in the stock price has resulted in the automotive manufacturer, which started paying dividends in 2014, becoming the most popular high dividend stock among hedge funds. At the current market price and with a $0.36 per share quarterly dividend, General Motors Company (NYSE:GM) boasts an annual dividend yield of 4.96%. The fall in the stock has also caused the company to come under severe criticism from several analysts and experts due to the $5 billion buyback that it authorized earlier, under pressure from activist investors. With 41 million shares at the end of June, Warren Buffett’s Berkshire Hathaway continued to remained the investment firm with the largest stake in General Motors Company (NYSE:GM) that we follow.
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