High-Dividend Stocks That Hedge Funds Are Fleeing

Corrections, although feared by most investors, are actually a great time for investors who exercise patience because it allows them to buy their favorite stocks at a cheaper price. This reasoning is especially true and holds the most significance for fixed income investors who invest primarily in dividend stocks. During periods of corrections, not only are they able to buy their favorite stocks at a cheaper price, but because they are buying dividend stocks they get a comparatively much better dividend yield than investors who bought those stocks at a higher price. This is why it is generally counterintuitive for an investor to sell their high dividend stocks when the markets are undergoing a correction and one ends up doing so only when they become extremely bearish on the stock. The third quarter of this year was unarguably one of the most volatile period for the equity markets in the last few years and there were several high dividend stocks that not only got beaten down aggressively during that period, but also saw investors losing faith in them. Considering this, we at Insider Monkey thought to compile a list of high dividend stocks that hedge funds were fleeing during the third quarter. Read further to know which are the five such stocks that topped our list this time.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

#5 TIM Participacoes SA (ADR) (NYSE:TSU)

Investors with Long Positions (as of September 30): 13

Aggregate Value of Investors’ Holdings (as of September 30): $273.2 Million

Current Dividend Yield: 2.5%

Shares of Latin American telecommunication services provider TIM Participacoes SA (ADR) (NYSE:TSU) have had a steady decline this year and currently trade down more than 57% year-to-date. Actually TIM Participacoes SA is not the only company that has witnessed such declines, most Latin American stocks, especially Brazilian stocks have suffered serious losses due to the political crisis the country is facing. Last Thursda,y two of the three motions filed to stop the impeachment of Brazil’s president, Dilma Rousseff, were denied by the country’s top court. During the third quarter, when TIM Participacoes SA (ADR) (NYSE:TSU)’s stock lost 42.2%, the number of hedge funds tracked by Insider Monkey that held a stake in it came down by 12 and the aggregate value of their holdings in it saw a decline of $264 million. On October 27, analysts at Barclays reiterated their ‘Equal Weight’ rating on the stock, while lowering their price target to $10 from $10.90. Billionaire Israel Englander‘s Millennium Management reduced its stake in TIM Participacoes SA (ADR) (NYSE:TSU) by 40% to 1.57 million shares during the July-September period.

#4 SouFun Holdings Ltd (NYSE:SFUN)

Investors with Long Positions (as of September 30): 20

Aggregate Value of Investors’ Holdings (as of September 30): $311.9 Million

Current Dividend Yield: 2.9%

SouFun Holdings Ltd (NYSE:SFUN) witnessed a spectacular bull run during the second quarter, but then saw an equally painful decline during the third quarter when most Chinese stocks were shunned aggressively by investors. Though the number of hedge funds covered by us that owned a stake in the company declined by 13 or almost 40% during the July-September quarter, the aggregate value of their holdings in the company was only down by 22.2% during the same period. Shares of SouFun Holdings like most Chinese companies, especially tech companies, have recovered in the fourth quarter and currently are trading down 8% year-to-date. On November 13, the company announced that it has signed an agreement with Chonging Wanli New Energy Co Ltd (Wanli). Under the terms of the agreement, SouFun Holdings Ltd (NYSE:SFUN) seeks to acquire a controlling stake in Chonging Wanli’s public shell. Investing legend George Soros‘ Soros Fund Management increased its stake in SouFun Holdings Ltd (NYSE:SFUN) by 39% to almost 2 million shares during the third quarter.

#3 Williams Companies Inc (NYSE:WMB)

Investors with Long Positions (as of September 30): 73

Aggregate Value of Investors’ Holdings (as of September 30): $604.75 Million

Current Dividend Yield: 8.24%

Weak commodity prices have ensured that the decline that Williams Companies Inc (NYSE:WMB)’s stock started at the beginning of the third quarter has continued till now, expanding its drop to 30% year-to-date. The number of hedge funds covered by Insider Monkey that reported owning a stake in the company came down by 13 during the third quarter, while the aggregate value of their holdings, which saw a drop of over $4.5 billion during the same period. In late-September, Energy Transfer Equity LP (NYSE:ETE) had announced that it would be buying Williams Companies Inc (NYSE:WMB) for $33 billion. Interestingly, in June, Williams Companies Inc had rejected Energy Transfer Equity LP (NYSE:ETE)’s proposal for the same deal at an implied value of $53.3 billion. On December 3, analysts at Jefferies Group reiterated their ‘Hold’ rating on the stock, while lowering their price target on it to $35 from $46. With ownership of over 41.6 million shares of the company, Keith Meister‘s Corvex Capital remained Williams Companies’ largest shareholder among the funds tracked by us at the end of September.

#2 TerraForm Power Inc (NASDAQ:TERP)

Investors with Long Positions (as of September 30): 31

Aggregate Value of Investors’ Holdings (as of September 30): $476.6 Million

Current Dividend Yield: 8.23%

TerraForm Power Inc (NASDAQ:TERP) [formerly SunEdison Yieldco, Inc.] has lost more than 75% of its value since July mostly because of investors losing faith in its parent company Sunedison Inc (NYSE:SUNE), which is itself down over 80% year-to-date. The number of hedge funds that were long the stock declined by 15 and the aggregate value of hedge funds’ holdings in the company dropped by over $612 million during the third quarter. On November 9, the company reported its third-quarter results, declaring a per share loss of $0.03 on revenue of $153 million, versus analysts’ expectations of EPS of $0.18 on revenue of $144.62 million. Andrew Feldstein and Stephen Siderow‘s Blue Mountain Capital purchased over 5 million shares of the company at the end of the third quarter and ended up becoming its largest shareholder among the funds we track at the end of that period.

#1 General Motors Company (NYSE:GM)

Investors with Long Positions (as of September 30): 88

Aggregate Value of Investors’ Holdings (as of September 30): $5.1 Billion

Current Dividend Yield: 3.97%

Although its stock declined by 8.8% and the aggregate value of investors’ holdings came down by only 11.6%, the number of investors that revealed owning a stake in General Motors Company (NYSE:GM) dropped by 16 during the third quarter. Interestingly, it was at the end of the third quarter that the company settled its ignition switch probe for $900 million and put a rest to months of uncertainty among investors regarding the fine it will have to pay. After this settlement was announced investors regained their confidence in the stock, helping General Motors Company (NYSE:GM) make a swift recovery in the fourth quarter and bounce back in the green with year-to-date gains of nearly 4% currently. On December 3 analysts at Citigroup reiterated their ‘Buy’ rating and $50 price target on the stock, which represents a potential upside of 38% from the stock’s current trading price. Warren Buffett’s Berkshire Hathaway increased its stake in General Motors Company by 22% to exactly 50 million shares during the July-September period.

Disclosure: None