A Look at Performance of Hedge Funds’ Five High-Dividend Bets

Staples Inc. (NASDAQ:SPLS)

– Elite Investors with Long Positions (as of December 31): 49

– Aggregate Value of Elite Investors’ Holdings (as of December 31): $1.05 Billion

– Dividend yield: 4.39%

There were 49 hedge funds monitored by Insider Monkey with positions in Staples Inc. (NASDAQ:SPLS) at the end of December, as compared to 54 funds registered at the end of September. By the same token, the overall value of their positions decreased to $1.05 billion from $1.34 billion during the fourth quarter. These 49 funds stockpiled roughly 17% of the company’s stock heading into 2016. The shares of the office-supply giant gained nearly 18% in the first quarter of this year, which has weighted on the company’s current dividend yield of 4.39%. Just recently, Fitch Ratings downgraded the credit rating and financial outlook for Staples because of “secular headwinds” and “flattish” sales anticipated for the upcoming years. Particularly, the ratings agency reduced the company’s long-term rating to BB+ from BBB- and downgraded its financial outlook to “negative” due to the ongoing uncertainty around the Staples-Office Depot Inc. (NASDAQ:ODP) merger. The largest U.S. office-supply retailers announced a merger agreement in February 2015, but the U.S. Federal Trade Commission has opposed the multi-billion-dollar merger, saying that it would hurt competition and trigger price increases. Meanwhile, Staples received approval from European Union regulatory authorities to acquire Office Depot in February 2016, on the condition that the acquirer divests Office Depot’s European contract business and entire Office Depot’s operations in Sweden. It is important to note that the company’s payout ratio reached 81% in 2015, so there isn’t lots of room for growth when it comes to dividend payments. Richard S. Pzena’s Pzena Investment Management owns 33.30 million shares of Staples Inc. (NASDAQ:SPLS) as of December 31.

AT&T Inc. (NYSE:T)

– Elite Investors with Long Positions (as of December 31): 48

– Aggregate Value of Elite Investors’ Holdings (as of December 31): $3.10 Billion

– Dividend yield: 4.39%

The smart money sentiment towards AT&T Inc. (NYSE:T) also declined in the final quarter of 2015; the number of funds with long positions in the company declined to 48 from 60 quarter-on-quarter. At the same time, the value of those positions shrunk to $3.10 billion from a higher figure of $3.76 billion quarter-over-quarter. AT&T is the perfect type of income paying stock most investors, both growth-oriented and income-seeking investors, would want to have in their portfolios. The provider of communications and digital entertainment services has seen its shares gain almost 12% since the beginning of 2016. Despite the exceptional stock performance, the stock continues to send shareholders fat dividend checks that yield 4.98% annually. Just recently, analysts at Jefferies upped their price target on AT&T to $44 from $40 and reiterated the ‘Buy’ rating the stock, citing “opportunity for continued outperformance driven by estimate upside (wireless margins, deal synergies) and supportive relative valuation”. Shares of AT&T currently change hands at around 12.9-times expected earnings, versus the forward P/E multiple of 14.0 for the telecommunication services sector. The relatively small multiple seems to suggest that investors do not anticipate strong future growth from the telecommunications giant, but the company’s management expects 2016 total revenue of $166.98 billion, which marks a 13.7% revenue growth rate. Warren Buffett’s Berkshire Hathaway had 46.58 million shares of AT&T Inc. (NYSE:T) in its equity portfolio at the end of December.

Disclosure: None