Five Dividend Stocks to Follow Hedge Funds Into

Dividend yield is a very important metric that should be taken into account when picking a stock. Stocks that pay dividends usually outperform their non-dividend paying peers over the long run and usually have lower volatility than the broader market. Moreover, the dividend is a sign that a company is financially healthy, has a steady cash flow and the management is committed to return capital to shareholders, so the stock is likely to enjoy growth over the long run, while investors also get to enjoy dividend payments.

Regular dividend payments also offer investors the opportunity to enjoy steady and regular payments, which is particularly important for retirement portfolios, while younger people can take advantage of the low risk profile of dividend stocks.

One of the best approaches to dividend investing is to stick to a dividend reinvestment plan, under which dividend payments are reinvested to buy additional shares of the company, with many companies offer this process to be done automatically and the transactions can be commission-free or the shares or fractions of a share can be acquired at a discount to the market price.

When picking a dividend stock to invest in, it’s important to start with the dividend yield. While a higher dividend yield indicates higher returns, it’s important that the dividend paid by the company is sustainable, i.e. the company has the cash flow to keep paying dividends. Some stocks, such as REITs or MLPs have higher yields because they are required to pay out most of their profits as dividends.

For other companies, a high dividend yield can signal some financial issues. Sometimes, a company’s stock may lose value, but the management may choose to maintain the same dividend or even increase it, in order to show investors that the struggles are temporary. Therefore a further analysis into the company and industry is required.

One way to select the best dividend-paying stocks is to follow hedge funds. At Insider Monkey, we track over 650 hedge funds and analyze their quarterly 13F filings. We need the data to identify the best stocks in the small-cap space that best-performing hedge funds are collectively bullish on. We share these stocks with our premium subscribers in our quarterly newsletters (read more details here). In addition, we also issue a monthly activist newsletter that focuses on one activist fund each month and identifies the best ways to imitate it.

However, our data also allows us to monitor the hedge fund sentiment towards thousands of stocks, including those that pay dividends. We have selected a list of stocks with a dividend yield above 2.30% that saw the most hedge funds in our database holding their shares at the end of last year. We narrowed down the list further to pick those stocks that saw the largest increase in popularity over the last year.

Our list of dividend-paying stocks that hedge funds like starts with McDonald’s Corporation (NYSE:MCD), in which there were 62 funds holding shares heading into 2018, up by two funds over the quarter and higher than 55 funds that disclosed stakes as of the end of 2016. McDonald’s Corporation (NYSE:MCD)’s stock has a dividend yield of 2.55% and the company is currently paying a dividend of $1.01 per quarter. McDonald’s has been consisently growing its dividend for decades, which earned it a place among Dividend Aristocrats, a group of S&P 500 stocks with over 25 consecutive years of dividend increases.

McDonald’s Corporation (NYSE:MCD)’s business model that includes over 80% of restaurants owned and operated by franchisees ensures it with a stable cash flow and the company plans to increase the proportion of franchised locations to 95%, which suggest that it’s most likely that McDonald’s Corporation (NYSE:MCD) will continue increasing its dividend. Moreover, McDonald’s Corporation is a good recession-proof investment and should perform better than the broader market in case of a correction, alongside some of these stocks.

Even though during the fourth quarter, the number of funds from our database long Bristol-Myers Squibb Co (NYSE:BMY) declined by four to 66, the stock saw an increase in popularity during 2017, as there were 58 funds with stakes in the company a year earlier. In December, Bristol-Myers Squibb Co (NYSE:BMY) declared a dividend of $0.40 per share for the first quarter, up from the previous $0.39. The company’s stock sports a yield of 2.35%. What’s also important to point out is that Bristol-Myers Squibb Co (NYSE:BMY) has been paying dividends for almost three decades and it increased its dividend during the financial crisis.

For the last quarter, Bristol-Myers Squibb Co (NYSE:BMY) posted EPS of $0.68 and revenue of $5.45 billion, both slightly above the consensus estimates. Moreover, the company provided its 2018 guidance, which includes revenue growth in the low- to mid-single digits.

General Electric Company (NYSE:GE) might be a slightly controversial choice since there weren’t many positive news regarding the company in the last year and its stock lost 45% during 2017. However, many analysts consider that General Electric Company (NYSE:GE)’s stock is close to bottoming out. Hedge funds also believe that General Electric Company’s (NYSE:GE)’s stock is a bargain. During the fourth quarter, the number of funds bullish on General Electric jumped by 18 to 68, while during 2017, that number went up by 14 funds. In fact, the stock saw one of the largest increases in popularity during the last three months of 2017.

As General Electric Company (NYSE:GE)’s stock has been facing many financial issues, the company halved its dividend last year, but with the stock price also falling, its dividend yield currently stands at around 3.40%. The company’s new CEO John Flannery is currently working on turning the industrial conglomerate around, which involves a lot of work from portfolio restructuring and selling assets, to cutting costs, improving margins and turning around the power segment. 2018 will be an important year for General Electric, as the company takes steps in improving its situation and investors will watch closely if the turnaround is actually possible, but hedge funds seem to be betting on that.

Broadcom Ltd (NASDAQ:AVGO) and QUALCOMM, Inc. (NASDAQ:QCOM) both saw a substantial increase in popularity among hedge funds during the fourth quarter in connection with Broadcom Ltd (NASDAQ:AVGO)’s bid to acquire QUALCOMM, Inc. (NASDAQ:QCOM) last November. However, earlier this week, President Donald Trump signed an executive order banning the merger on national security concerns. Nevertheless, both chipmakers are good investments even without their merger. Broadcom Ltd (NASDAQ:AVGO) still has plans to move back to the US and is likely to explore other acquisitions. QUALCOMM, Inc. (NASDAQ:QCOM) has its own growth plans and is currently trying to acquire NXP Semiconductors NV (NASDAQ:NXPI), having recently raised the offer to $127.50 per share from $110.

At the end of 2017, there were 70 funds long QUALCOMM, Inc. (NASDAQ:QCOM), up from 41 funds a quarter earlier and from 63 funds at the end of 2016. In Broadcom Ltd (NASDAQ:AVGO), the number of bullish investors went up by nine over the quarter and by 10 over the year to 83 funds that disclosed stakes in the last round of 13F filings. QUALCOMM, Inc. (NASDAQ:QCOM) and Broadcom Ltd (NASDAQ:AVGO) have dividend yields of 3.79% and 2.69%, respectively, although in dollar terms, Broadcom’s dividend of $1.75 per share is higher than Qualcomm’s $0.57.

Disclosure: none