JPMorgan’s Dividend Stocks for 2016, Part 3

Analysts at JP Morgan recently came out with a list of top 30 dividend stocks for 2016. In our previous posts (read the first part and second part) we covered 10 stocks from that list and also analyzed the hedge funds sentiment towards those stocks. In this article we are going to do the same for another five stocks from that list, namely General Motors Company (NYSE:GM), Gilead Sciences, Inc. (NASDAQ:GILD), Goldcorp Inc. (USA) (NYSE:GG), Honeywell International Inc. (NYSE:HON), and Interpublic Group of Companies Inc (NYSE:IPG).

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.

General Motors Company (NYSE:GM)

– Number of Hedge Fund Holders (as of September 30): 88

– Total Value of Holdings (as of September 30): $5.11 billion

– Hedge Fund Holdings as Percent of Float (as of September 30): 10.80%

Though improvements in the U.S. auto industry hasn’t translated well for automotive stocks this year, analysts at JP Morgan remain bullish on General Motors Company (NYSE:GM) citing the low valuation that it trades at currently compared to its historical average. The over 4.20% annual dividend yield that General Motors Company (NYSE:GM)’s stock provides is very attractive for income investors considering that it is a large-cap stock, while the $2.1 billion that the company still has on its balance sheet for share buybacks till the end of 2016 reduces the possibility of a sharp downturn for the stock. During the third quarter, when the stock lost 8.8%, the ownership of the company among funds covered by us declined by 16. However, JP Morgan’s analysts are heavily bullish on the stock with an ‘Overweight’ rating and $47 price target. Legendary investor Warren Buffett‘s Berkshire Hathaway increased its stake in the company by 22% to 50 million shares during the July-September period.

Gilead Sciences, Inc. (NASDAQ:GILD)

– Number of Hedge Fund Holders (as of September 30): 90

– Total Value of Holdings (as of September 30): $4.76 billion

– Hedge Fund Holdings as Percent of Float (as of September 30): 3.30%

Although shares of Gilead Sciences, Inc. (NASDAQ:GILD) have come down significantly from the highs they made at the end of first-half of this year, the popularity of the company among hedge funds is on a rise. Amid a nearly 16% drop in the stock during the third quarter, 6 more funds became bullish on the company. JP Morgan’s analysts believe that although HCV drugs have become a huge cash cow for Gilead Sciences, Inc. (NASDAQ:GILD) generating free cash flow of $15.5 billion in the first three quarters of 2015, investors are concerned about future business drivers of the company.  However, with $11 billion remaining for stock buybacks and an annual dividend yield of 1.67% they foresee the company to be able to return cash to shareholders in the near future. Interestingly, they have a price target of $133 on the stock, which is 7.2% above its lifetime high of $123.37. Having increased its stake by 41% to 6.15 million shares during the third quarter, billionaire David E. Shaw‘s firm, D. E. Shaw, remained the largest shareholder of the company among funds tracked by us at the end of September.

Goldcorp Inc. (USA) (NYSE:GG)

– Number of Hedge Fund Holders (as of September 30): 29

– Total Value of Holdings (as of September 30): $871.28 million

– Hedge Fund Holdings as Percent of Float (as of September 30): 8.40%

The decline in prices of gold this year has taken a toll on Goldcorp Inc. (USA) (NYSE:GG)’s stock. Moreover, the delay in the completion of the company’s two new mines recently has also added to the pressure and caused Goldcorp Inc. (USA) (NYSE:GG)’s stock to now trade down more than 36% year-to-date. But despite all this, the number of funds covered by us that were long in the company increased by five and the aggregate value of their holdings increased by $23 million during the third quarter. Analysts at JP Morgan highlighted that even though the company has significantly reduced its monthly dividend payout to $0.02 per share, it still provides one of the highest and best supported annual dividend yield among gold stocks covered by them. Jonathon Jacobson‘s Highfields Capital Management initiated a huge stake in Goldcorp during the third quarter by purchasing 2.5 million shares.

Honeywell International Inc. (NYSE:HON)

– Number of Hedge Fund Holders (as of September 30): 46

– Total Value of Holdings (as of September 30): $1.29 billion

– Hedge Fund Holdings as Percent of Float (as of September 30): 1.70%

Moving on, the headwinds faced by Honeywell International Inc. (NYSE:HON) and the average fundamentals of the company has kept its stock range bound this year. Analysts at JP Morgan acknowledged this in their note, but believe that the company will continue to outperform its peers in profit growth next year due to improvement in cost and margins as well as high business quality. Moreover, they also believe that the stock deserves to trade at a premium currently if one takes into account that 2017 will be an ‘inflection’ year for its revenues and the addition of Elster Division of Melrose Industries plc will help in increasing the overall growth of the company. Honeywell International has an outstanding history of consistent dividend payout  in the last 28 years and currently boasts of an annual dividend yield of  2.28%. Robert Polak‘s Anchor Bolt Capital more than doubled its stake in Honeywell International to over 1.26 million shares during the third quarter.

Interpublic Group of Companies Inc (NYSE:IPG)

– Number of Hedge Fund Holders (as of September 30): 36

– Total Value of Holdings (as of September 30): $2.10 billion

– Hedge Fund Holdings as Percent of Float (as of September 30): 26.80%

The significant rise that Interpublic Group of Companies Inc (NYSE:IPG)’s shares have had in the fourth quarter has pushed its year-to-date gains to 12.13%. Even after this significant rise, the advertising major boasts of an attractive annual dividend yield of over 2%. This perhaps explains why analysts at JP Morgan find Interpublic Group of Companies Inc (NYSE:IPG) the best income stock in the media universe. Though they acknowledge that owing to the industry it operates in its results can be volatile, citing the company’s record new business win backlog in 2015 they feel that the company will be able to deliver on its promise of double digit EPS growth in 2016 and the growth in its organic revenues will continue. The number of funds covered by us that were long in the company declined by five during the third quarter, but the aggregate value of hedge funds’ holdings in it increased by $94 million during the same time. Ken Griffin‘s Citadel Investment Group initiated  a stake in Interpublic Group of Companies during the third quarter purchasing over 5.5 million shares of the company.

Disclosure: None