With the current 10 year treasury rate hovering around 1.95%, bonds have lost their attractiveness as a form of fixed income investment. Combine this with a 2% to 3% annual inflation and the picture starts to look even bleaker, especially for investors who are close to their retirement age and want to maximize their gains over the next couple of years. Keeping this in mind, we believe that dividend stocks might be a better alternative. However, there is another concern facing soon-to-be retired individuals, and that is financial security. They can’t afford to chase high yields that bear much greater risk than the Treasury bonds, and then there is also the question of stability of the yield. In this regard, we have formulated a list of five dividend stocks that have not reduced their dividends for the last 10 years, and have received the greatest interest from hedge funds. They include Air Products & Chemicals, Inc. (NYSE:APD), McDonald’s Corporation (NYSE:MCD), Johnson & Johnson (NYSE:JNJ), Microsoft Corporation (NASDAQ:MSFT), and Williams Companies Inc (NYSE:WMB).
Hedge funds have not invested in these companies for the sole purpose of dividends. They are in for the long haul and while they wait for the capital appreciation to take place, they feast on this stable supply of dividends. Our research, which is based on tracking these hedge funds for more than 15 years has revealed that the 50 most popular large cap stocks among these firms underperformed the market by an average of 7 basis points per month between 1999 and 2012. In contrast to this, our small cap strategy, which is based on 15 most popular small caps among hedge funds and insiders outperformed the market by nearly a percentage point per month on average. The strategy has performed exceptionally well during forward tests as well, since it outperformed the S&P 500 by nearly 80 percentage points to return 132% from August 2012 onwards (read more details here). Hence investors need to be smart about following hedge funds in a way that maximises their returns and hence refrain from blindly following their large cap picks.
Moving on to the first pick, Air Products & Chemicals, Inc. (NYSE:APD), which hasn’t reduced its dividend for the last 32 years. The company is also one of the hedge funds’ favorite Dividend Aristocrats and has a current yield of 1.97%. At the end of the foutrth quarter 82 hedge funds had an aggregate investment of $8.92 billion in the company as compared to 71 funds with $7.87 billion in the previous quarter. Bill Ackman‘s Pershing Square is one of these shareholders with 20.55 million shares valued at $2.96 million.
Air Products & Chemicals, Inc. (NYSE:APD) is up nearly 31% over the year as the company is in the midst of reorganization which has been going on since Ackman took an activist stake in the company during 2013. The company hired a new CEO, Ghasemi Seifi following the activist intervention. He made an insider purchase in February this year involving some 27,000 shares of Air Products & Chemicals, Inc. (NYSE:APD) valued at approximately $4.15 million, which proves his strong belief in the company’s turnaround.
