Five Dividend Stocks You Should Look Into

In this low interest rate environment, dependable, wide-moat dividend stocks are in high demand. Not only can dividend stocks yield more than bonds, but also they can deliver superior capital appreciation at around the same level of risk in the long run (given that the short run is sentiment-driven, dividend stocks will have higher volatility and risk in shorter time frames).

Using the data from the latest round of 13F filings, Insider Monkey has put together a list of some of the smart money’s favorite dividend stocks, based on their popularity among the investors we track. In this article, we take a closer look at Microsoft Corporation (NASDAQ:MSFT), JPMorgan Chase & Co. (NYSE:JPM), Pfizer Inc. (NYSE:PFE), Wells Fargo & Co (NYSE:WFC), and Johnson & Johnson (NYSE:JNJ).

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

Ken Wolter / Shutterstock.com

#5 The Go-To Healthcare Dividend Aristocrat (Johnson & Johnson)

– Number of Hedge Fund Holders (as of June 30): 82
– Total Value of Hedge Fund Holdings (as of June 30): $5.59 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 1.70%

Johnson & Johnson (NYSE:JNJ) is a dividend aristocrat (having raised the dividend for 53 straight years) and healthcare behemoth. The company has three divisions, all of which lead the industry. First, the company has a pharmaceutical division that produces blockbuster drugs such as Hep C drug Olysio, Crohn’s disease treatment Remicade, and type 2 diabetes drug Invokana/Invokamet. Second, Johnson & Johnson has a consumer healthcare division that houses many well-known brands such as Band-Aid, Tylenol, and Neutrogena. And the third is Johnson & Johnson’s medical devices division which makes everything from glucose monitors to breast implants. The diversified nature of Johnson and Johnson lowers its risk, while payout ratio of 0.55 makes its dividend very safe. Given Johnson and Johnson’s appealing characteristics, it’s not surprising that the number of funds from our database with holdings in Johnson & Johnson (NYSE:JNJ) rose by five quarter-over-quarter to 82 at the end of June.

#4 Warren Buffett’s Favorite Bank Stock (Wells Fargo)

– Number of Hedge Fund Holders (as of June 30): 88
– Total Value of Hedge Fund Holdings (as of June 30): $28.44 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 11.80%

Although Barron’s recently commented that Wells Fargo & Co (NYSE:WFC)’s core earnings might not be as high as its earnings let on, Wells Fargo is still one of the best dividend stocks in the financial sector. Not only does the bank eschew from some of Wall Street’s more riskier practices, but also Wells Fargo has a low cost deposit base that allows it to earn a greater return on capital than its competitors. Given Warren Buffett’s stamp of approval, an annual dividend of $1.52, which translates into a 3% yield at current prices, investors should consider Wells Fargo as a core holding for their dividend portfolios. Among some 750 funds tracked by Insider Monkey, 88 funds owned shares of Wells Fargo & Co (NYSE:WFC) at the end of the second quarter, down by two from a quarter earlier.

– Number of Hedge Fund Holders (as of June 30): 94
– Total Value of Hedge Fund Holdings (as of June 30): $5.67 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 2.70%

Although many of its pharma peers have seen their stock prices decline sharply due to the Mylan NV (NASDAQ:MYL) EpiPen controversy, Pfizer Inc. (NYSE:PFE)’s shares have held up comparatively well. One big reason for Pfizer’s resilience is that the company makes most of its profits from drugs created by its internal research and development (or its acquisitions R&D) and not from price hikes of existing, older-generation drugs. Another reason is that investors have more confidence in management’s plan to unlock value for shareholders in the years to come. Shares currently yield a payout of almost 3.5% at current prices. At the end of June, 94 funds tracked by us were long Pfizer Inc. (NYSE:PFE).

#2 JPMorgan Chase & Co.
– Number of Hedge Fund Holders (as of June 30): 99
– Total Value of Hedge Fund Holdings (as of June 30): $7.24 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 3.20%

JPMorgan Chase & Co. (NYSE:JPM) is perhaps the best bank in the finance sector. Not only does JPMorgan have great conservative management, but also the company has a fortress-like balance sheet. Throw in JPMorgan’s diversification, its $1.92 per share annual dividend (which gives its stock a 2.84% yield at current prices), and its 1.08 price-to-book ratio, and it’s not surprising that 99 funds from our database had a bullish position in JPMorgan Chase & Co. (NYSE:JPM) at the end of June, compared to 97 funds a quarter earlier. Many analysts expect JPMorgan to benefit if interest rates rise.

#1 Microsoft Corporation

– Number of Hedge Fund Holders (as of June 30): 131
– Total Value of Hedge Fund Holdings (as of June 30): $18.82 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 4.70%

Given its majority market share in the PC market, its strong customer lock-in in enterprise, and its progress in growth markets such as the cloud and virtual reality, it’s not surprising that many investors would have Microsoft Corporation (NASDAQ:MSFT) in their portfolios. Although the process has taken almost a decade, Microsoft is now officially beyond the PC. Rather than depending on a segment that is in a secular decline, Microsoft’s future fortunes depend more on the cloud and enterprise productivity instead. Investors have taken notice of Microsoft’s diversification. Microsoft’s shares are up by 36% in the last year and 6% in the green year-to-date. Despite the rally, Microsoft’s shares still pay an attractive yield of over 2.5% at current prices. David Blood and Al Gore‘s Generation Investment Management increased its stake in Microsoft Corporation (NASDAQ:MSFT) by 9% in the second quarter to over 15.1 million shares held at the end of June.

Disclosure: None