Billionaire Mario Gabelli’s Top Dividend Picks

It is commonly known that investors pour capital into stocks for two principal reasons: annual income and long-term capital appreciation. Numerous public companies pay out a portion of their income to shareholders in the form of dividends, though some companies may opt for retaining those profits to reinvest them into growing their businesses. Long-term capital growth occurs when a firm’s share price appreciates over time. Hence, investors of all scales buy equities to receive annual income in the form of dividends, gain on stock price appreciation, or profit from a combination of the two. Having said that, the Insider Monkey team decided to lay out a list of dividend stock, known as income stocks, owned by billionaire value investor Mario J. Gabelli, the founder of GAMCO Investors. GAMCO Investors has over $39.6 billion in assets under management as of September 30, 2015. His contrarian investing approach of acquiring shares of undervalued companies and holding onto them for a long horizon has been very successful over the years. An institutional client who invested $10 million in GAMCO in 1978, when the firm was founded, would have had $2.2 billion in March 2015, excluding fees. Meanwhile, a similar investment in the S&P 500 would have yielded only $645 million over the same time span. With that in mind, let’s proceed to the discussion of Mr. Gabelli’s top dividend picks as of the end of 2015.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP)

– Shares Owned by GAMCO Investors (as of December 31): 4.67 Million

– Value of GAMCO’s Holding (as of December 31): $241.34 Million

– Dividend Yield: 5.79%

GAMCO Investors cut its position in Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP) by 102,944 shares or 2% during the December quarter to 4.67 million shares, which were valued at $241.34 million at the end of the year. The shares of the real estate investment trust (REIT) specializing in destination hotel assets in urban and resort markets are down 18% over the past 52 weeks. The REIT’s portfolio of assets includes four upscale, meetings-focused resorts managed by its lodging operator Marriott under the Gaylord Hotels brand. In December 2015, the REIT’s Board of Directors declared a cash dividend of $0.70 per share for the fourth quarter of 2015, which generates an annual dividend yield of 5.79%. Ryman Hospitality Properties generated revenues of $780.00 million during the first three quarters of 2015, up from $749.38 million generated in the same period of the prior year. The REIT’s net income for the nine months that ended September 30 increased 13.9% year-over-year to $72.61 million. A number of 17 hedge funds tracked by Insider Monkey were invested in the REIT at the end of December 2015, amassing 17.20% of its outstanding common stock. Zac Hirzel’s Hirzel Capital Management disclosed owning 1.14 million shares of Ryman Hospitality Properties Inc. (REIT) (NYSE:RHP) through its latest 13F.

Honeywell International Inc. (NYSE:HON)

– Shares Owned by GAMCO Investors (as of December 31): 2.05 Million

– Value of GAMCO’s Holding (as of December 31): $212.05 Million

– Dividend Yield: 2.30%

The fund trimmed its holding in Honeywell International Inc. (NYSE:HON) by a mere 33,905 shares during the October-December period, ending the year with a stake of 2.05 million shares. Earlier this week, the diversified technology and manufacturing company confirmed its intentions to merge with competitor United Technologies Corporation (NYSE:UTX), saying that the two parties have engaged in discussions about a possible business combination in the past several months. However, officials at United Technologies believe that a possible merger of the two biggest players in the aerospace and commercial-building equipment businesses would definitely face significant regulatory obstacles. On the other side of the table, Honeywell officials consider that a potential merger would generate $3.5 billion in annualized cost synergies. In the meantime, Honeywell International’s stock offers a dividend yield of 2.30%, so the $2.38 annual dividend payment is a strong reason for investing in the company. It should also be mentioned that Honeywell shares currently trade at approximately 14 times expected fiscal 2017 earnings, below the multiple of 15.4 for the Industrial Machinery industry. Ken Griffin’s Citadel Advisors owns 4.53 million shares of Honeywell International Inc. (NYSE:HON) as of December 31.

Wells Fargo & Co (NYSE:WFC)

– Shares Owned by GAMCO Investors (as of December 31): 3.60 Million

– Value of GAMCO’s Holding (as of December 31): $195.88 Million

– Dividend Yield: 3.12%

GAMCO reduced its stake in Wells Fargo & Co (NYSE:WFC) by 63,465 shares during the final quarter of 2015, remaining with 3.60 million shares valued at $195.88 million at the end of the year. The financial services company has seen its shares decline by 12% since the beginning of 2016, which has made the company’s valuation and dividend yield more attractive to investors. Wells Fargo pays out an annualized dividend of $1.50 per share of common stock, which denotes a dividend yield of 3.12%. At the same time, Wells Fargo’s shares are currently trading around 10.0 times forward earnings, below the average forward P/E ratio of 12.1 for the Financials sector. It is also important to note that Wells Fargo’s return on equity has been significantly above the average ROE for the banking industry in the past several years, which means that the company’s management has been successful in putting shareholders’ equity to good use. The company’s ROE equals 13% as of the beginning of 2016, substantially above the ROE of 7.8% for the banking industry. A total of 85 smart money investors from our database were invested in Wells Fargo at the end of 2015, accumulating 11.70% of its outstanding stock. Warren Buffett’s Berkshire Hathaway upped its position in Wells Fargo & Co (NYSE:WFC) by 9.41 million shares during the December quarter to 479.70 million shares.

Genuine Parts Company (NYSE:GPC)

– Shares Owned by GAMCO Investors (as of December 31): 2.24 Million

– Value of GAMCO’s Holding (as of December 31): $192.15 Million

– Dividend Yield: 2.89%

GAMCO Investors owned 2.24 million shares of Genuine Parts Company (NYSE:GPC) at the end of December 2015, 49,740 shares less as compared to the stake held a quarter earlier. The shares of the automotive replacement parts distributor are 6% in the green year-to-date. Earlier this month, the company’s Board of Directors agreed to increase the cash dividend payment to an annual rate of $2.63 per share, up from the previous dividend of $2.46 per share. Genuine Parts Capital has paid dividends each year since going public in 1948, while 2016 marks the 60th straight year of increased dividend payments. Genuine Parts Company generated sales of $15.28 billion during 2015, down from $15.34 billion posted for 2014. Its net income for the year inched down by 1% year-on-year to $705.7 million. The number of hedge funds monitored by Insider Monkey bullish on the company dropped to 21 from 23 during the December quarter. Joel Greenblatt’s Gotham Asset Management upped its holding in Genuine Parts Company (NYSE:GPC) by 35% to approximately 629,000 shares in the last three months of 2015.

American Express Company (NYSE:AXP)

– Shares Owned by GAMCO Investors (as of December 31): 2.68 Million

– Value of GAMCO’s Holding (as of December 31): $186.54 Million

– Dividend Yield: 2.10%

GAMCO Investors cut its stake in American Express Company (NYSE:AXP) by 71,740 shares during the December quarter, remaining with 2.68 million shares worth $186.54 million. The shares of the credit-card issuer have lost 21% since the beginning of 2016, making the stock one of the worst-performing components of the Dow Jones Industrial Average (DJIA) this year. The global services company has been faced with worsening fundamentals due to pressures on merchant fees, changing regulatory environment and toughening competition in the payments industry. Just recently, American Express Company announced its plans to overhaul its management, restructure its marketing operations and cut $1 billion in costs over the next two years. The company pays out an annualized dividend of $1.16 per share, which signifies a current dividend yield of 2.10%. Among the funds we track, 53 held positions in American Express at the end of December and stockpiled 20.50% of the company’s outstanding stock. Billionaire Ken Fisher’s Fisher Asset Management reported ownership of 11.73 million shares of American Express Company (NYSE:AXP) in the latest round of 13F filings.

Disclosure: None