In this article, we will discuss dividend stock portfolio: 10 stock picks by hedge funds. If you want to skip our detailed analysis of these stocks, you can go directly to Dividend Stock Portfolio: 5 Stock Picks by Hedge Funds.
Following the pandemic, many companies were compelled to decrease dividends. The recent quarters have seen a steady improvement in these payments to shareholders. According to BMO Capital Markets, dividends climbed by 4% in the second quarter of 2021 compared to the same period the previous year. This was 6.5% higher than the pandemic low established in the third quarter of 2020.
Howard Silverblatt, a senior index analyst at S&P Dow Jones, was quoted as saying, “dividends are back.” As per S&P Dow Jones Indices, almost 300 companies have increased their dividends this year, contributing towards the annual dividend payment of $522 billion YTD, reflecting a rise of 8.1% since the last year.
However, despite the dividends increasing, the dividend yields continue to remain low. Bob Pisani at CNBC reported:
“Because of the relentless rise in the S&P this year (up about 24% year-to-date), dividend yields, at 1.3%, are near historic lows.”
The lowest yields ever recorded were in September 2000 at 1.14%.
If you are looking at long-term investing, it is important to opt for corporations that offer a healthy dividend yield on the back of a strong bottom line and cash flows. According to AFH Wealth Management, with a number of stocks in the FTSE 100 index yielding above 4%, it is still possible for a dividend investor to build a portfolio that will provide a steady stream of income.
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Our Methodology
With this context in mind, let’s discuss the 10 dividend-paying stock picks by hedge funds.
These are some of the most popular dividend stocks based on the data of 873 hedge funds tracked by Insider Monkey.
We have kept a dividend yield of more than 2% as an eligibility criterion for this list. We have also made use of analyst ratings and the hedge fund sentiment concerning each stock. Notable names on the list include the leading investment bank JPMorgan Chase & Co. (NYSE:JPM), the financial giant Citigroup Inc. (NYSE:C), and the pharmaceutical behemoth Johnson & Johnson (NYSE:JNJ).
Why pay attention to hedge fund sentiment while choosing stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Dividend Stock Portfolio: 10 Stock Picks by Hedge Funds
10. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 68
Dividend Yield as of November 10: 2.37%
The Procter & Gamble Company (NYSE:PG) is a name that belongs to the prestigious group of Dividend Aristocrats List. The Cincinnati, Ohio-based multinational consumer goods corporation has been increasing its annual dividend for the past 65 consecutive years.
Procter & Gamble Company (NYSE:PG) was able to surpass analysts’ revenue and earnings estimates for Q1 FY22 due to the strong growth of nine out of ten business segments. The company posted an EPS of $1.61, beating the analysts’ estimate of $1.59. Despite the global supply chain concerns, the company reiterated its FY 2022 guidance of revenues growing by 2% to 4% and EPS increasing by 3% to 6%, undeterred by a $2.3 billion headwind due to higher commodity and freight cost putting pressure on margins. Furthermore, the company reiterated its plan of paying out $8 billion in dividends in FY 2022.
On October 5, Bryan Spillane at Bank of America reinitiated his coverage on Procter & Gamble Company (NYSE:PG) with a Buy rating and a $160 target price. He believes that the company is reaping the benefit of product innovation and has the potential to navigate itself during these challenging times due to supply chain disruption.
JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Johnson & Johnson (NYSE:JNJ) are amongst the other popular stocks in the dividend stock portfolio.
9. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 69
Dividend Yield as of November 10: 2.86%
Morgan Stanley (NYSE:MS) in July this year doubled its dividend payout and announced a handsome stock repurchase program to increase the value of the stock. The announcement of doubling the dividend was made to compensate for the dividend freeze during the COVID-19 pandemic in 2020.
Investment management firm ClearBridge Investments discussed its stance on Morgan Stanley (NYSE:MS) in its Q2 2021 investor letter. Here’s what the fund said:
“The Strategy also benefited from strong showings from financials holdings such as recent addition Morgan Stanley, a leading bank holding company offering a variety of financial services worldwide, and one of the largest broker-dealers, investment banks and wealth managers in the U.S. Morgan Stanley has been a leader in helping direct capital to address global sustainability challenges. Its sustainability efforts include capital markets actions such as issuing green bonds and it was early in its support for sustainability in investing and its concern for the environment. Morgan Stanley reported a great quarter with record revenues and strength across the businesses as it works to integrate and find synergies with recent acquisition E*TRADE. Following stress tests for banks, Morgan Stanley increased its dividend and share repurchase plan more than expected.”
The investment banking division of the company has been riding the IPO and SPAC wave for the past two years, which has helped the company generate strong revenues. Furthermore, Morgan Stanley (NYSE:MS) also made a smart plan through the acquisition of E-Trade financials and Eaton Vance in 2020. The electronic trading platform had $56 billion in deposits at the time of the takeover.
Keith Horowitz, a Citi analyst, maintained a Neutral rating on Morgan Stanley (NYSE:MS) stock but raised the price target from $100 to $105 on October 18, citing the company’s ‘strong quarter’ results.
8. ViacomCBS Inc. (NASDAQ:VIAC)
Number of Hedge Fund Holders: 71
Dividend Yield as of November 10: 2.71%
ViacomCBS Inc. (NASDAQ:VIAC) is a legacy entertainment and mass media conglomerate company with access to over 4.3 billion subscribers across 180 countries. Notable network, studio, and streaming brands like Showtime, Paramount+, the CW, and CBS fall under the domain of the corporation. The company was created as a result of a merger between Viacom and CBS in August 2019.
ViacomCBS Inc. (NASDAQ:VIAC) is one of the new players in the streaming industry that pays out a dividend. The company’s annual dividend payment comes in at around $600 million.
The company is shifting its focus towards developing strong streaming platforms. In this regard, ViacomCBS Inc. (NASDAQ:VIAC) has partnered up with Comcast in launching a new subscription video on demand or SVOD service in Europe across 20 countries and reaching up to 90 million homes by March 2022. Following this development, Steven Cahall at Wells Fargo upgraded the stock from an Equal Weight rating to an Overweight rating and revised the price target from $45 to $60 in August this year. The analyst is impressed by the efforts made by ViacomCBS related to the strategic shift towards a streaming service and believes that the efforts made by the company are “bearing fruit.”
In addition to ViacomCBS Inc. (NASDAQ:VIAC), JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Johnson & Johnson (NYSE:JNJ) are amongst the stocks with a dividend yield of over 2%.
7. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 73
Dividend Yield as of November 10: 3.30%
Bristol-Myers Squibb Company (NYSE:BMY) is one of the largest biopharmaceutical companies in the world, headquartered in New York. The company offers treatment in the field of cardiovascular, hematology, immunology therapeutic medicines, and oncology. Bristol-Myers Squibb Company (NYSE:BMY) is studying more than 40 diseases and has around 50 compounds in the pipeline. One of the leading compounds in Phase-III of research is Opdivo, which is targeted towards the treatment of solid tumors.
The company’s dividend is hovering around 3.3% around its five-year high with a payout ratio of 26%. This provides the company a lot of space in raising its dividend for the investors. In finding a cure for cancer, the company made an equity investment of $20 million in Compugen Ltd (NASDAQ:CGEN), a leading clinical-stage cancel immunotherapy corporation.
Wedgewood Partners mentioned Bristol-Myers Squibb Company (NYSE:BMY) in its Q4 2020 investor letter. Here’s what the fund said:
“Bristol-Myers Squibb recently reported accelerating sales as much of the medical services industry returned to work. The Company continues to expect double-digit earnings growth over the next few years, driven by existing drugs, in addition to a broad pipeline of new drugs and indications. While the market remains fixated on a couple of patent expirations that could occur over the next several years, we think this is well-known at this point, yet the market still undervalues a couple of key acquisitions the Company has made in the past few years, particularly Celgene, which was acquired for a song.”
Amongst the hedge funds, Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK-B) has a stake worth $1.75 billion in Bristol-Myers Squibb Company (NYSE:BMY) at an average price of $60 as of the end of the second quarter of 2021. The stock price is still hovering around the $60 level.
6. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 78
Dividend Yield as of November 10: 2.74%
Intel Corporation (NASDAQ:INTC) is the world’s biggest semiconductor chip manufacturer in terms of revenue. The semiconductor industry is on fire as the global sales of semiconductors grew to an all-time high of $144.8 billion at the end of Q3 2021. The sales observed growth of 27.6% from the same quarter last year and 7.4% on a sequential basis.
However, the company is diversifying itself from the semiconductor business as the industry is commoditized with very little room for differentiation. Intel Corporation (NASDAQ:INTC) is heavily betting on the foundry business. The foundry business is focused on providing customers with a wide range of silicon design and manufacturing services to fulfill their own unique product needs. Intel Corporation (NASDAQ:INTC) is expected to have a capital outlay of over $20 billion towards its foundry business. However, this should not concern dividend investors as the company has $20 billion worth of cash on its book, which can easily sustain an annual dividend payment of roughly $6 billion.
On November 1, Gus Richard, at investment advisory Northland, upgraded Intel Corporation (NASDAQ:INTC) from an Underperform rating to a Market Perform rating with a $49 target, up from $42 previously. Richard believes that the success of the foundry business is slim, but the chance of ending Taiwan Semiconductor Manufacturing Company’s (TSMC) monopoly is still a bet to take on.
Third point LLC shared its stance on Intel Corporation (NASDAQ:INTC) in its Q4 2020 investor letter. Here’s what the investment management firm said:
“After building a significant stake in Intel in Q4, we sent a letter on December 29th to Intel’s Board Chairman, Omar Ishrak. We shared our views regarding Intel’s dramatic underperformance and suggested certain steps the company could take to remedy a rapidly deteriorating outlook. We highlighted an urgent need for Intel to address its “brain drain” of engineering talent, the chief cause of the manufacturing and design deficiencies that have led to its declining market share.
Shortly after our note and engagement with the company, Intel announced it was bringing back Pat Gelsinger as its new CEO. Gelsinger is a respected engineer and manager who previously spent 30 years of his career working closely with Intel’s legendary founders during the company’s best days. With a background in electrical engineering and prior roles such as head of Intel’s digital enterprise group, desktop products group, and Intel Labs, and as the company’s first CTO, Gelsinger has the deep technical expertise needed to address Intel’s current execution issues. He also has a history of success in reinvigorating major organizations. During his eight-year tenure as CEO of VMWare, he put the on-premise company on a path to the hybrid cloud and positioned it for several years of growth ahead.
Equally important, while Gelsinger is a respected engineer, he is also widely lauded as a manager of engineers. It is hard to think of a better person to motivate and inspire the best of Intel’s thousands of brilliant employees who will help build the company’s future.
Once Gelsinger has successfully regained Intel’s position as the premier microprocessor vendor in the world, we believe the opportunity for additional shareholder value creation is enormous. The semiconductor compute TAM is over $100 billion, including CPUs, GPUs, FPGAs, ASICs, and other architectures, and growth is increasingly driven by unstoppable trends like cloud computing and artificial intelligence. Intel’s human, financial, and intellectual property resources are unmatched in the semiconductor industry. The ability to leverage those resources in order to better capture the full unbounded growth of this market opportunity set makes us excited to be long-term shareholders.”
Apart from Intel Corporation (NASDAQ:INTC), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), Johnson & Johnson (NYSE:JNJ) is one of the dividend-paying stocks on the hedge funds’ radar as of the second quarter of 2021.
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Disclose. None. Dividend Stock Portfolio: 10 Stock Picks by Hedge Funds is originally published on Insider Monkey.
