Billionaire Steven Cohen’s New High Dividend Stock Picks

The 10-year U.S treasury bond yield went below the critical 2% mark recently, hitting a fresh 5-month low at 1.99%. With lukewarm consumer spending and low inflation, market participants feel that the Fed will remain ‘patient’ for at least a few more months and hence are making a beeline for bonds. Although this day-to-day variation in yield doesn’t impact those fixed-income investors who are already invested in bonds, for new investors, the less than 2% yield definitely reduces the appeal of them, regardless of the safety they provide. Which is why we feel that at times such as now, fixed-income investors looking to make fresh investments should consider dividend-paying stocks as an alternative to bonds. While these stocks carry significantly more risk than bonds, from a risk-reward perspective, when yields of bonds fall below a critical mark, the rewards of investing in dividend stocks far outweigh the associated risks.

We at Insider Monkey continuously track the portfolios of renowned hedge funds to find hidden small-cap gems and in our pursuit to do so, we also come across stocks with decent dividend yields that are popular among hedge funds. In this article we are going to take a closer look at three dividend-paying companies in which the family office of billionaire trader Steve Cohen, Point 72 Asset Management, has acquired a large stake. Since Mr. Cohen is famous on the Street for his brilliant track record of consistently outperforming the market, it is quite possible that he has made these investments with a focus on capital appreciation rather than to generate income. However, that adds to the advantage of investing in them because not only do these stocks have a decent dividend yield – much better than bonds – but they also have the potential to appreciate in the future and add to the gains of their investors.

We pay attention to hedge funds’ moves because our research has shown that hedge funds like Point72 are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by more than 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Let’s start with National-Oilwell Varco, Inc. (NYSE:NOV). During the second quarter, Point 72 Asset Management acquired 385,000 shares of the company in addition to call options underlying a further 415,000 shares. The stakes are worth $18.59 million and slightly above $20 million respectively as of June 30. Like most oil and natural gas stocks, the decline in oil prices has weighed heavily on the stock of National-Oilwell Varco, Inc. (NYSE:NOV) and the continuous decline it has had since the start of the year has eroded 41.6% of its market cap year-to-date. However, this decline has also resulted in its quarterly dividend of $0.46 per share now representing a lucrative dividend yield of 4.76%. In the last couple of days several analysts and brokerages have lowered their outlook on the stock. On October 14, analysts at Robert W. Baird reduced their price target on the stock to $42 from $48, while keeping their rating unchanged at ‘Neutral’. This was followed by analysts at Societe Generale reiterating their ‘Neutral’ rating on the stock while reducing their price target on it to $40 from $47. Bruce Berkowitz‘s Fairholme (Fairx) was another fund that initiated a stake in National-Oilwell Varco, Inc. (NYSE:NOV) during the second quarter; it held over 1.13 million shares of the company as of June 30.

Moving on, Point 72 Asset Management bought more than 3.8 million shares of offshore driller Noble Corp plc (NYSE:NE) during the April-June period, worth $59.5 million as of June 30. Interestingly, the fund had sold off its entire holding of over 3.5 million shares of the company in the first quarter of the year, which it had bought in the last quarter of 2014. Shares of  Noble Corp plc (NYSE:NE) were trading flat for the year in May, but owing majorly to the 27% decline they suffered in the third quarter, now trade down by 29% year-to-date. At their current market price of $12.21 and with a quarterly dividend of $0.38 per share, Noble Corp plc (NYSE:NE) shares boast a spectacular dividend yield of 12.38%. However, regardless of the dividend yield, experts generally don’t have a favorable outlook on Noble Corp and the offshore drilling industry as a whole, largely due to the declining demand for floaters. Analysts expect the company to report EPS of $0.52 when it declares results for the third quarter on October 29, considerably below the EPS of $0.59 that it reported for the same quarter last year. With ownership of 3.7 million shares, Ryan Heslop and Ariel Warszawski‘s Firefly Value Partners was the largest shareholder of the company at the end of second quarter among the hedge funds we track.

Finally, luxury lifestyle retailer Coach Inc (NYSE:COH) was another dividend stock that Point 72 Asset Management added to its portfolio during the second quarter. The fund bought 2.59 million shares of the company, valued at over $89.5 million as of June 30. After rising up by more than 10% during the first quarter, shares of Coach Inc (NYSE:COH) suffered a major decline during the second and third quarters and currently trade down by 23.11% for the year. The $0.34 per share quarterly dividend that the company currently pays translates into an annual dividend yield of 4.64%. In the last couple of years Coach Inc (NYSE:COH) has been facing increasing pressure from ‘affordable luxury’ retailers, which led it to close 20% of its stores in North America in the past two fiscal years. However, the company is expecting better days ahead as it projects growth in its revenues beginning in fiscal year 2016. Analysts at Wolfe Research initiated coverage on the stock with a ‘Peer Perform’ rating and $32 price target on October 14, exactly a week after analysts at Citigroup Inc. had initiated coverage on the stock with a ‘Neutral’ rating and $31 price target. Like Point 72, Clint Carlson‘s Carlson Capital also initiated a stake in Coach Inc during the second quarter; at the end of June, it held 850,000 shares of the company.

Disclosure: None