We recently published a list of 10 Best Dividend Paying Stocks To Buy According to Quant Hedge Fund AQR. In this article, we are going to take a look at where Cardinal Health, Inc. (NYSE:CAH) stands against the other dividend-paying stocks to buy according to Quant Hedge Fund AQR.
Only a handful of hedge funds have pursued unique investment strategies, and Cliff Asness’ Applied Quantitative Research, or AQR Capital, stands out among them. Known for its quantitative value strategies, Asness co-founded AQR in 1998 after working at Goldman Sachs. He and his partners developed the firm’s investment approach during their time in the University of Chicago’s Ph.D. program, emphasizing value and momentum strategies. These distinct approaches have delivered strong results for the fund over the years. In fact, AQR’s longest-running multistrategy fund returned 18.5% last year after fees, and had its best year in 2022, with a 43.5% gain. In January 2023, Asness forecasted that buying undervalued companies while shorting overvalued ones in particular sectors would be especially advantageous for that year.
Given the growing focus on generative AI and machine learning, Asness mentioned that his natural inclination is to be contrarian. However, he acknowledges that he needs to move past this instinct because he recognizes significant opportunities in machine learning. During a recent Bloomberg Invest conference, Asness highlighted that they increasingly rely on automated decision-making at AQR, expressing a belief that the machine might have a slight edge over human judgment. The firm’s improved performance in recent years is partly attributed to market cycles, but it has also implemented some changes.
Though Asness is now directing his focus toward artificial intelligence, diversification has always been a fundamental aspect of his investment strategy. He believes that concentrating investments into a single asset does not adequately address the inherent risks in financial markets. According to Asness, the rationale for preferring a diversified portfolio lies in its potential to provide a higher return for the risk taken, rather than simply offering a higher expected return.
When discussing diversification, different investment strategies can have varying advantages. Dividend investing is particularly popular among investors. In his paper published in the Financial Analysts Journal, which earned him the Graham and Dodd Award for the best paper of the year twice, Asness emphasized the value of dividends. He explained that companies that distribute higher dividends generally experience stronger earnings growth over the following decade compared to those that pay out less. Asness elaborated that substantial dividend payouts often indicate a company’s confidence in its future prospects, as firms are reluctant to cut dividends and typically wouldn’t pay them if they anticipated poor performance. Furthermore, companies paying large dividends must be more selective with their investment projects, potentially leading to wiser investment choices. On the other hand, companies that pay minimal dividends might be either struggling (as seen with inflated earnings in 1999) or engaging in “empire building,” where managers, having plenty of cash, may invest imprudently in less profitable ventures.
Asness’s preference for dividend stocks is also apparent in his Q2 2024 portfolio, which features a significant number of dividend-paying equities. With that in mind, we will take a look at some of the best dividend-paying stocks according to AQR Capital.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A senior physician in a modern healthcare institution administering medication to a patient.
Cardinal Health, Inc. (NYSE:CAH)
AQR Capital’s Stake Value: $340,465,462
Dividend Yield as of August 22: 1.84%
Cardinal Health, Inc. (NYSE:CAH) is an American multinational healthcare services company that specializes in the distribution of pharma products and related devices. The company stands to gain from its consistent focus on innovation and technology. Over the past five years, the stock has risen by more than 156%, significantly outpacing the broader market’s 95% gain. Analysts are optimistic about the healthcare sector’s prospects this year, citing ongoing changes fueled by advancements in AI and shifting patient needs. Since the start of 2024, the stock has surged by nearly 7%.
Cardinal Health, Inc. (NYSE:CAH) recently announced its fiscal Q4 2024 earnings, which showed strong operational execution, coupled with significant strategic advancements in the portfolio. The company generated solid cash flow, achieved continued profit growth in the Pharmaceutical and Specialty Solutions segment, and saw notable improvements from the GMPD Improvement Plan. In FY24, the company’s operating cash flow of $3.8 billion and free cash flow of $3.9 billion reached their all-time high. As the new fiscal year begins, the company carries forward momentum and confidence, as reflected in the raised guidance for fiscal year 2025.
Cardinal Health, Inc. (NYSE:CAH), one of the best dividend-paying stocks, currently offers a quarterly dividend of $0.5056 per share. The stock has a dividend yield of 1.84%, as of August 22. In May this year, the company raised its dividend for the 38th consecutive year.
At the end of Q2 2024, AQR Capital held over 3.4 million shares in Cardinal Health, Inc. (NYSE:CAH), worth over $340.4 million. The hedge fund trimmed its position in the company by 4%, with the company now accounting for 0.52% of the firm’s 13F portfolio.
Cardinal Health, Inc. (NYSE:CAH) was a part of 39 hedge fund portfolios at the end of Q2 2024, down from 45 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of over $1.46 billion. Elliott Management was one of the company’s leading stakeholders in the company in Q2.
Overall CAH ranks 7th on our list of the best dividend paying stocks to buy according to Quant Hedge Fund AQR. While we acknowledge the potential of CAH as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than CAH but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
