Omega Advisors was founded by Leon Cooperman in 1991 after he had headed Goldman Sachs Asset Management, with Cooperman becoming a billionaire on the strength of the fund’s performance. The fund recently filed its 13F with the SEC, disclosing many of its long equity positions as of March (we track these filings from hundreds of hedge funds as part of our work developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year.
Top dog
According to the 13F, the fund owned 7.2 million shares of Linn Energy LLC (NASDAQ:LINE) at the end of the first quarter of 2013. Linn Energy LLC (NASDAQ:LINE), an oil and gas company, has been making quarterly payments of 72.5 cents per share for the last several quarters, which at current prices comes out to a yield of nearly 9%. The stock price has fallen slightly in the last year, while the S&P 500 has gained over 25%, and even at the current valuation Linn is arguably expensive with a forward earnings multiple of 22.
Best of the rest
Kinder Morgan Inc (NYSE:KMI), which transports and stores petroleum products, was another of Omega’s income stock picks with the filing disclosing ownership of a little over 5 million shares. Kinder Morgan Inc (NYSE:KMI)’s dividend yield is 3.8, and the company has a record of increasing its dividend payments over time (although the stock only became publicly traded in early 2011). There are some concerns with value here as well, although Kinder Morgan Inc (NYSE:KMI) has been recording increases in its revenue and earnings compared to the first quarter of 2012.
Cooperman and his team had 5.1 million shares of Atlas Pipeline Partners, L.P. (NYSE:APL) in their portfolio at the end of March. Atlas is a pipeline company and also operates natural gas gathering and processing systems. The current dividend yield is a little over 6%; however, quarterly dividend payments were slashed (and then temporarily suspended) in early 2009, and still have not returned to their pre-crisis levels. With a beta of 2.1 as well, Atlas may still be a good income pick but investors would be highly exposed to economic conditions in both dividend and capital gains terms.
Omega was aggressively buying Chimera Investment Corporation (NYSE:CIM) between January and March with the 13F showing a position of almost 49 million shares. Chimera is a real estate investment trust which invests in residential mortgage-backed securities as well as other mortgage loans. Real estate investment trusts, or REITs, receive favorable tax treatment conditional on distributing a large share of their taxable income to shareholders. Between that factor and the inherent risk in Chimera’s investments, this results in a high dividend yield- over 10% at current prices and dividend levels. Dividend payments have been in decline the last few years, however.
The fund owned almost 14 million shares of KKR Financial Holdings LLC (NYSE:KFN), a $2.2 billion market cap company which invests in a variety of high-yield debt securities including junk bonds and mezzanine loans. At current prices the dividend yield at KKR Financial Holdings is almost 8%, though of course part of that high yield is due to the riskiness of the company’s income streams. Similarly to Atlas, dividend payments are actually still only about half what they were in 2008 showing the company’s vulnerability to economic downturns and financial crises in particular.
Final thoughts
Among hedge fund piggybackers—and CNBC viewers—Leon Cooperman is widely known as an investor to watch. While we don’t recommend blindly following anybody’s moves without performing some of your own research first, Cooperman is a billionaire for a reason: he knows what he’s doing in the markets.
Now, for investors afraid of fiscal uncertainty in the U.S. equity markets in the near- to intermediate-term, dividend-paying stocks are likely where they’re looking. Atlas Pipeline, Kinder Morgan and Linn Energy each offer solid yields in an energy space that looks bullish over the next few years, while the sheer size of KKR’s dividend is worth anyone’s attention. Chimera, meanwhile, has the added bonus of operating in a REIT segment that’s the economy’s proverbial locomotive: many investors are bullish here, and it’s easy to see why Cooperman is.
Disclosure: I own no shares of any stocks mentioned in this article.
