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 Exxon Mobil Corporation (NYSE:XOM) 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).
Aerial view of a major oil rig in the middle of the sea, pumping crude oil.
Exxon Mobil Corporation (NYSE:XOM)
AQR Capital’s Stake Value: $410,117,578
Dividend Yield as of August 22: 3.33%
An American energy company, Exxon Mobil Corporation (NYSE:XOM) continued to be a favored choice for AQR Capital. The hedge fund significantly increased its stake in the company by 106% during the second quarter of 2024. The fund owned over 3.5 million shares in the company, valued at over $410 million. The company represented 0.62% of the firm’s 13F portfolio.
Exxon Mobil Corporation (NYSE:XOM) is one of the most popular energy stocks among investors because the company gains a lot from its acquisitions. Earlier in May, the company completed its acquisition of Pioneer Natural Resources. The transaction involved issuing 545 million ExxonMobil shares, valued at $63 billion at the time, and assuming $5 billion in debt. This merger created the world’s largest potential for high-return unconventional resource development. Following the acquisition, the company increased its annual share repurchase program to $20 billion through 2025, contingent on favorable market conditions. The company plans to repurchase over $19 billion worth of shares in 2024.
Madison Investments highlighted a strong business momentum for Exxon Mobil Corporation (NYSE:XOM) in its Q1 2024 investor letter. Here is what the firm has to say:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
In addition to its acquisitions, Exxon Mobil Corporation (NYSE:XOM)’s cash flow makes it one of the best dividend-paying stocks on our list. In the second quarter of 2024, the company generated $10.6 billion in operating cash flow and its free cash flow for the period came in at $15.2 billion. The company also returned $4.3 billion through dividends to shareholders. It offers a quarterly dividend of $0.41 per share and has a dividend yield of 3.33%, as of August 22. The company holds a 41-year track record of consistent dividend growth.
The number of hedge funds owning stakes in Exxon Mobil Corporation (NYSE:XOM) grew to 92 in Q2 2024, from 81 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $6.2 billion.
Overall XOM ranks 6th on our list of the best dividend paying stocks to buy according to Quant Hedge Fund AQR. While we acknowledge the potential of XOM 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 XOM 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.
