Billionaire Ken Fisher’s Favorite Dividend Stocks

Billionaire Ken Fisher is a well-known name on Wall Street, but for those who don’t know or recognize him, he is a money manager that runs Fisher Investments, which has over $70 billion in assets. In addition, Fisher is a popular author, with several of his books becoming New York Times bestsellers and a long-time Forbes columnist. Fisher’s investment approach involves buying unpopular stocks of good companies and hold them for long periods of time and enjoy the returns as companies gain popularity. In this article, we are going to explore some of Ken Fisher’s favorite dividend stocks.

Following big and successful investors has its benefits, as smaller investors can imitate their picks and generate returns without spending too much time on analysis and without having to pay these funds an arm and a leg. However, there are many issues with this approach, including the fact that many institutional investors, including Ken Fisher hold very large and very diversified portfolios, which means that it would be difficult and expensive to imitate their picks. At Insider Monkey, we have developed a strategy that allows imitating hedge funds and other institutional investors, which eliminates many downsides. Our approach involves focusing on the consensus picks of 100 best-performing hedge funds and since our strategy was launched in May 2014 it has returned 74.4%, beating the broader market by over 20 percentage points. You can access the latest picks from our strategy by checking out our newsletters free of charge for 14 days.

Another way to imitate institutional investors is by looking at certain groups of stocks that they are bullish on, such as dividend stocks that we will focus on in this article. Taking individual stocks from investors’ equity portfolio will require some additional research into these companies, but knowing that these investors have invested in them is a good place to start. When it comes to dividend stocks, there’s the additional advantage that dividend-paying companies are usually financially-sound and should ensure some stable returns over the long-run.

However, it’s now always the case, and Ken Fisher pointed it out himself in his “The Little Book of Market Myths“, when he mentioned the fact that Lehman Brothers paid a dividend in August 2008, just weeks before it went under. In the chapter about high-yield dividend stocks, Fisher says:

“High-dividend stocks aren’t permanently better and don’t have materially different expected volatility or return characteristics over time. As important: Dividends aren’t guaranteed. Firms that pay them can and do and will cut the dividend. Or they may kill it altogether!”

Instead, Fisher suggests to engage in what he calls “homegrown dividends”, which involves selling a portion of shares in order to generate cash. In the end, Fisher says that a well-diversified portfolio is bound to have some dividend-paying stocks, but we shouldn’t focus on them and, instead pay more attention to the overall long-term return rather than just the dividend yield.

Having said that, let’s now take a closer look at Fisher’s stock picks. I its latest 13F filing, Fisher Asset Management disclosed an equity portfolio worth $76.56 billion. The portfolio is well diversified both across sectors and geographically. In his last several interviews, Fisher suggested that the bull market has a couple more years to run and indicated that a good approach is to be overweight foreign stocks, while maintaining a material exposure to the US stock market. Most of Fisher’s stock picks are long-term investments for years, but many of the positions initiated in the last 5-6 years are indeed foreign companies like Vodafone, Tencent Holdings, or Softbank. Many of Fisher’s picks are dividend-paying companies. For example, among the top 50 largest holdings, 32 are in companies that pay dividends and 29 are stocks that have yields above 1.50%. On the next page, we will discuss five of Fisher’s largest holdings in companies whose stocks have dividend yields above 1.50%.

Apple Inc. (NASDAQ:AAPL) represents Fisher’s third-largest holding, with the fund owning 11.21 million shares worth $1.90 billion as of the end of 2017. During the fourth quarter, the fund boosted its stake in the company by 2%. In addition being a leading tech company with tens of billions in quarterly sales, Apple Inc. (NASDAQ:AAPL) is also appreciated by value investors for its focus on increasing shareholder value through dividends and stock buybacks. The company is currently expected to repatriate its cash hoard of $285 billion and it is highly likely that a big portion of those funds will go to shareholders through higher dividends and more stock buybacks. Apple Inc. (NASDAQ:AAPL)’s dividend yield of 1.50% is not particularly high, but investors should not forget that the company’s dividend is very safe as it generates lots of free cash flow every year and in the last couple of years, Apple Inc. (NASDAQ:AAPL) has raised its dividend by around 10% per year on average. Combine this with the popular opinion on the Street that Apple Inc. (NASDAQ:AAPL) is undervalued, trading at 17.30 times earnings (vs the S&P 500 average of 24), and you get a great stock that should be added to an income portfolio. Aside from Fisher, there are 106 other funds that we track at Insider Monkey that are long Apple Inc. (NASDAQ:AAPL) and they hold in aggregate $41.26 billion worth of stock as of the end of 2017.

In Johnson & Johnson (NYSE:JNJ), Fisher Asset Management inched up its position by 2% to 12.13 million shares worth $1.69 billion during the last three months of 2017. Johnson & Johnson (NYSE:JNJ), whose stock has a dividend yield of 2.70%, is the only healthcare stock among dividend kings, a group of 25 S&P 500 components that have been increasing their dividend consecutively for at least 50 years. As the world’s largest and most diverse drug manufacturer, Johnson & Johnson (NYSE:JNJ) has a broad portfolio of products and should enjoy solid growth in years to come. Lately, the company has been focusing on divestitures and sale of some businesses that are not part of its core portfolio. Last year, the company sold its Codman Neurosurgery unit to Integra Lifesciences, and its Cilag GmbH and Janssen Pharmaceutica businesses sold a portfolio of European over-the-counter products to Trimb Healthcare AB. Last month, Johnson & Johnson (NYSE:JNJ) received an offer for its LifeScan glucose monitoring business from private equity firm Platinum Equity. If the $2.1 billion binding offer is accepted (the deadline is June 15) then the deal should be completed by the end of the year. Overall, among the funds in our database, 74 investors disclosed holding shares of Johnson & Johnson (NYSE:JNJ) as of the end of 2017, down by one over the quarter.

Then there is Microsoft Corporation (NASDAQ:MSFT), which ranks on the ninth spot in Fisher’s equity portfolio, with the fund holding 16.95 million shares (up by 3% on the quarter) worth $1.45 billion. While Microsoft Corporation (NASDAQ:MSFT)’s dividend yield of 1.80% is not the highest among well-established tech giants, investors can be certain that the company’s dividend is secure, since Microsoft Corporation (NASDAQ:MSFT) is a veritable cash cow as its Windows and Office products remain very popular on the PC market, while its Azure cloud business is gaining steam and is one of the market leaders alongside Amazon.com, Inc. (NASDAQ:AMZN)’s AWS. Microsoft Corporation (NASDAQ:MSFT) has also been growing its dividend over the past decade, so investors can get a positive picture regarding the future of the company and its dividend payments. In addition, Microsoft Corporation (NASDAQ:MSFT) is one of the most popular stocks among the hedge funds we track, with 142 investors bullish on the company at the end of 2017, compared to 137 funds a quarter earlier.

Fisher Asset Management also disclosed a $1.35 billion position in Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), which contains 33.99 million shares. Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) is the largest dedicated chip foundry in the world, with a market share of over 50% and its stock sports a dividend yield of 2.73%. The company has been consistently increasing its annual dividend over the past several years from less than $0.10 per share in 2005 to $1.15 per share last year. One of the company’s top clients is Apple Inc. (NASDAQ:AAPL), for which Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) will reportedly produce smaller MicroLED panels that could be for a future Apple Watch model and for an “AR wearable device”. Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) saw 33 funds long the stock heading into 2018, up by five funds over the quarter.

In Pfizer Inc. (NYSE:PFE), Fisher Asset Management increased its position by 1.25 million shares during the fourth quarter and reported ownership of 36.37 million shares valued at $1.32 billion in its last 13F filing. Pfizer Inc. (NYSE:PFE) is one of the largest pharmaceutical companies in the world, whose stock has a dividend yield of 2.92%. Pfizer Inc. (NYSE:PFE) has lately been exploring strategic alternatives for its consumer products unit, Pfizer Consumer Healthcare, and CNBC has reported earlier this month that Procter & Gamble is in talks with Pfizer Inc. (NYSE:PFE) regarding a potential acquisition of the business or a joint venture deal. Moreover, Pfizer Inc. (NYSE:PFE) is expected to make a big acquisition this year in order to boost its growth, although Barclays analysts have recently downgraded the stock to ‘Neutral’ and cut the price target to $38 citing a lower probability that the company will pursue a major acquisition. At the end of 2017, there were 73 funds in our database that held shares of Pfizer Inc. (NYSE:PFE).

Disclosure: none