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 Citigroup Inc. (NYSE:C) 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 team of financial advisors huddled around a desk, discussing the best investment strategy for their client.
Citigroup Inc. (NYSE:C)
AQR Capital’s Stake Value: $302,046,065
Dividend Yield as of August 22: 3.72%
Citigroup Inc. (NYSE:C) is an American multinational investment bank and financial services company. The bank is actively working to enhance its performance. Although its balance sheet remains strong, as indicated by a CET1 ratio of 13.6%, it is also exploring additional strategies to bolster the business. The bank’s wealth management division has started the process of selling its trust administration and fiduciary services platform. This move is part of CEO Jane Fraser’s multi-year plan aimed at improving the bank’s performance, reducing costs, and optimizing operations. In addition, the company is upgrading its infrastructure to serve clients better and automating processes to strengthen controls. In its most recent earnings report, the bank underscored its dedication to ongoing transformation and strategic execution to achieve its medium-term objectives and improve returns over time.
Citigroup Inc. (NYSE:C) grew its quarterly dividend by 5.7% in June this year, after passing the annual Federal Reserve stress test. It is one of the best dividend-paying stocks according to AQR Capital as the company has never missed a dividend in over 34 years. Currently, the company pays a quarterly dividend of $0.56 per share and has a dividend yield of 3.70%, as of August 22. Its payout ratio is also lower with just 34% and the bank returned $1 billion to shareholders in common dividends during the second quarter of 2024.
Investors also noted Citigroup Inc. (NYSE:C)’s dividends and restructuring efforts. Diamond Hill Capital highlighted this in its Q1 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
During the second quarter of 2024, AQR Capital slashed its stake in Citigroup Inc. (NYSE:C) by 16%. The hedge fund owned nearly 5 million shares in the company, worth over $302 million. The company represented 0.46% of the firm’s 13F portfolio at the end of Q2.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 85 funds owned stakes in Citigroup Inc. (NYSE:C), down from 94 in the previous quarter. The consolidated value of these stakes is over $10.6 billion.
Overall C ranks 9th on our list of the best dividend paying stocks to buy according to Quant Hedge Fund AQR. While we acknowledge the potential of C 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 C 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.
