Israel Englander founded Millennium Management in 1989 and the hedge fund has since grown to over $10 billion in assets under management. Thanks to its strong performance, Englander is a billionaire and therefore one of the investors who we follow particularly closely in our database of quarterly 13F filings (which we also use to develop investing strategies, including our finding that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). When we went through Millennium’s most recent filing we noticed a number of high yield stocks; income investors may want to use these initial ideas as a starting point for further research. Here are our thoughts on the fund’s five largest positions in stocks which currently pay dividend yields of 3% or higher (or see the full list of Englander’s stock picks).
Chemicals giant yielding 3%.
Englander and his team nearly tripled their stake in $38 billion market cap specialty chemicals company LyondellBasell Industries NV (NYSE:LYB), which currently yields 3%. As a chemicals company, LyondellBasell Industries NV (NYSE:LYB) is tied to overall macro demand and as a result its beta is 2.5; as we’ll see, this is in contrast to the rest of the fund’s dividend picks which tend to be more defensive in nature. Improved margins carried the company to a sharp rise in earnings in the first quarter of 2013 versus a year earlier. Billionaire Andreas Halvorsen’s Viking Global reported a position of 13 million shares in LyondellBasell Industries NV (NYSE:LYB) in its own 13F (find Halvorsen’s favorite stocks).
Utilities.
The fund disclosed ownership of 1.5 million shares of NextEra Energy, Inc. (NYSE:NEE), up 30% from what it had owned at the beginning of 2013. Formerly known as FPL Group (and Florida Power & Light prior to that), NextEra is an electric utility which has been moderately increasing its dividend payments in recent years; quarterly payments are currently 66 cents, up from 50 cents three years ago. At current prices the annual yield is 3.4%, and income investors might want to look into the likelihood of NextEra increasing its dividend further in the future.
According to the 13F, Englander was also buying Sempra Energy (NYSE:SRE) between January and March, closing Q1 with 1.4 million shares in his portfolio. Sempra’s dividend payments have also been increasing the past few years, and we get a yield of 3.2% at current prices and dividend levels. We’d note that the trailing earnings multiple is 25- fairly high, even for a utility- and that net income has been down according to recent reports. Investors should be aware that Sempra stores and distributes natural gas as well as providing electricity.
LyondellBasell Industries NV (NYSE:LYB) looks somewhat interesting, at least for investors willing to take on the high market correlation, though of course other chemicals companies might offer better values even if the yields are lower. As far as the utilities go, American Electric Power and Xcel each boast market capitalizations of over $10 billion on top of their high yields and low betas and we think that either could fit well in a dividend portfolio. NextEra might also be worth researching, as we’ve mentioned, to see if the company might increase dividends again.
Disclosure: I own no shares of any stocks mentioned in this article.
