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%.

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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).

Royal Dutch Shell plc (ADR) (NYSE:RDS.A)‘s stock has slid by over 22% since the beginning of the year, and with the company paying a quarterly dividend of $0.94 per share, the stock trails a dividend yield of 7.21%. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) also opted to cut its expenses, but to maintain the high dividend. However, the last financial report showed a loss of $7.40 billion, on the back of a huge impairment charges, compared to a profit of $4.5 billion a year earlier. Even excluding one-time and other items, the adjusted income slumped by 70% on the year to $1.80 billion. The drop in profits raises serious questions regarding the company’s ability to keep paying dividends, although Pzena seems to be betting on the rebound of the sector as also added 1.78 million shares to its stake in Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and reported holding 9.27 million shares worth $439.19 million.

In Wal-Mart Stores, Inc. (NYSE:WMT) Pzena also increased its stake by 22% on the quarter to 6.32 million shares, valued at $410.04 million. The stock has taken a hit recently on the back of the financial guidance provided by the company. Wal-Mart Stores, Inc. (NYSE:WMT) said in its last earnings report that its revenue in the fiscal 2016 would remain flat, with a stronger US dollar, which affects the one-third of its revenue generated outside the US (read more here). The company also estimates higher operating expenses on the back of increases in wages that would offset the sales growth. Nevertheless, amid a 31% drop since the beginning of the year, the stock sports a 3.33% dividend yield and is trading at around 12.30 times earnings. Nigel Greig and Kenneth Cowin’s Gabalex Capital is also bullish on Wal-Mart Stores, Inc. (NYSE:WMT), holding 500,000 shares as of September 30.

Staples, Inc. (NASDAQ:SPLS) is a specialty retailer that Pzena is bullish on, and with a dividend yield of 3.64% it is also one of its top dividend picks. The fund reported holding almost 25.50 million shares of Staples, Inc. (NASDAQ:SPLS), worth $299.11 million shares; it added 3.31 million shares to the holding during the third quarter. Analysts currently project a slight decline in Staples, Inc. (NASDAQ:SPLS)’s revenue as larger companies like Wal-Mart or Amazon.com, Inc. (NASDAQ:AMZN) cut into the share of specialty retailers. However, the acquisition of Office Depot Inc (NASDAQ:ODP) announced in February might remedy the situation, consolidating the office supplies retail segment if it receives the approval of the Federal Trade Commission.

Disclosure: none