Multi-Billion Dollar Value Investing Fund Is Betting Big on These Dividend Stocks

Richard Pzena‘s Pzena Investment Management focuses on value investing and has around $25.5 billion in assets under management. In its latest 13F filing, Pzena revealed an equity portfolio worth $15.71 billion, with 39% invested in financial stocks, followed by technology and consumer discretionary companies, which amassed 16% and 14% respectively. Pzena also owns stakes in many companies that pay large dividends and therefore, their stocks sport significant dividend yields. With this in mind, we have compiled a list of Pzena’s top dividend picks, selecting five largest holdings in terms of value, represented by stocks with dividend yields above 3%.

We follow investors like Richard Pzena, because we are interested in stocks they invest in on the long side of their portfolios. By identifying the companies that the investors from our database are collectively bullish on, we can generate market-beating returns, although the key is to focus on their small-cap ideas, since these companies have intrinsic value and often trade at discount prices. Our strategy involves imitating the 15 most popular small-caps among more than 700 investors and it has outperformed the S&P 500 ETF (SPY) by some 53 percentage points in the last three years, returning 102% (see more details here).

HP Inc (NYSE:HPQ) represented Pzena’s top holding at the end of September, the fund holding 19.14 million shares valued at $490.27 million, up by 6% on the quarter. At the beginning of the month, HP Inc (NYSE:HPQ) completed the spin-off of Hewlett Packard Enterprise Co (NYSE:HPE), with shareholders receiving one share of Hewlett Packard Enterprise for each share of HP held as of October 21. Currently HP Inc (NYSE:HPQ)’s stock sports a dividend yield of around 4.80% and trades at around 8.2 times forward earnings, which make it rather attractive. The spin-off also provided investors with some more value and the next round of 13Fs will reveal how the sentiment changed following the split of the company. Meanwhile, 55 funds held 5.80% of Hewlett Packard at the end of June, while in the current round of 13F filings, David Cohen and Harold Levy’s Iridian Asset Management, reported holding 10.19 million shares of HP Inc (NYSE:HPQ), held as of the end of September.

The drop in oil prices that dragged many energy stocks lower also increased their dividend yields, as large companies cut expenses and maintain their high-dividend payment policies in order to retain more shareholders. This is particularly the case for oil & gas giants, like Exxon Mobil Corporation (NYSE:XOM), which earlier this year increased its dividend to $0.73 from $0.69 and its stock currently sports a yield of 3.46%, amid a 9% decline year-to-date. If oil prices maintain the same trend for the next several years, Exxon Mobil Corporation (NYSE:XOM) and its peers won’t be able to keep paying high dividends, but such a scenario is unlikely and oil prices will most probably rebound. Pzena held 6.11 million shares of Exxon at the end of September, adding 1.91 million shares during the third quarter; the value of the stake stood at $454.26 million. Billionaire Ken Fisher‘s Fisher Asset Management also disclosed ownership of some 5.47 million shares of Exxon Mobil Corporation (NYSE:XOM) in its latest 13F filing.

On the next page we are going to discuss Pzena’s three other top dividend picks, which include Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Wal-Mart Stores, Inc. (NYSE:WMT), and Staples, Inc. (NASDAQ:SPLS).