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 Johnson & Johnson (NYSE:JNJ) 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 smiling baby with an array of baby care products in the foreground.
Johnson & Johnson (NYSE:JNJ)
AQR Capital’s Stake Value: $489,176,124
Dividend Yield as of August 22: 3.08%
Johnson & Johnson (NYSE:JNJ) is an American pharmaceutical industry company that specializes in a wide range of biotech and medical products and also offers related services to consumers. The company has consistently grown its portfolio through various acquisitions. Recently, it announced plans to acquire the medical device company V-Wave for an initial payment of $600 million. The deal also includes potential milestone payments of up to $1.1 billion, contingent on regulatory and commercial achievements, and is expected to be finalized by the end of 2024. These acquisitions have consistently bolstered the company’s resilience. In the past five years, it has surged by nearly 27%.
Analysts have also recognized this resilience. A recent S&P Global report highlighted Johnson & Johnson (NYSE:JNJ) as one of the strongest pharmaceutical companies, citing its lower business and financial risks compared to other major drugmakers. The report commends the company for its significant scale and portfolio filled with blockbuster drugs, emphasizing the competitive advantages gained from sustainable innovations. These innovations enable premium pricing and product differentiation. The assessment considers factors like the company’s R&D investments, its strong R&D track record, the strength of its pipeline and marketing, and its ability to sustain long-term revenue growth and strong margins, even as products lose exclusivity.
During the second quarter of 2024, AQR Capital increased its position in Johnson & Johnson (NYSE:JNJ) by 39% and ended the quarter with over 3.3 million JNJ shares. These shares have a value of over $489 million, which made up 0.74% of the firm’s 13F portfolio.
Johnson & Johnson (NYSE:JNJ) is a Dividend King with 62 consecutive years of dividend growth under its belt. The company offers a quarterly dividend of $1.24 per share and has a dividend yield of 3.08%, as recorded on August 22. It is among the best dividend-paying stocks on our list.
At the end of June 2024, 80 hedge funds tracked by Insider Monkey were bullish on Johnson & Johnson (NYSE:JNJ), owning stakes worth nearly $4.7 billion in total.
Overall JNJ ranks 2nd on our list of the best dividend paying stocks to buy according to Quant Hedge Fund AQR. While we acknowledge the potential of JNJ 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 JNJ 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.