We recently published a list of 10 Best Affordable Dividend Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Thermo Fisher Scientific Inc. (NYSE:TMO) stands against other best affordable dividend stocks to buy according to hedge funds.
In 2024, several major tech companies surprised investors by announcing their first-ever dividend payments. Traditionally, technology firms reinvest billions annually to fuel growth, leading to the perception that they rarely distribute dividends. However, as more large-cap companies prioritize enhancing shareholder returns, a balanced approach—focusing on both income generation and stock appreciation—is increasingly becoming the norm. The market has been experiencing uncertainty in recent days, leaving investors concerned about its future direction. Given this unpredictability, a wise strategy is to consistently invest in high-quality dividend stocks when they are attractively priced, rather than attempting to time market fluctuations.
READ ALSO: Dividend Stock Portfolio For Income: Top 10 Stocks to Buy
An analysis of historical trends suggests that undervalued stocks have delivered stronger long-term returns. Research conducted by Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College highlighted that stocks with lower price-to-book ratios outperformed the broader market index between 1963 and 1990, according to Oakmark Funds. Their findings also noted that growth investors often favored companies with exciting prospects, while value investors focused on more traditional, overlooked stocks. In the long run, value investors tended to see better results.
During the high-inflation environment of 2022, value stocks declined by 7%, whereas growth stocks saw a steeper drop of 28.6%. Furthermore, value stocks in the US posted their strongest relative performance against growth stocks since the dot-com crash of 2000.
Analysts suggest that value stocks tend to hold up relatively well during economic downturns. During recessions, investors often become more risk-averse and seek out stable, resilient investments, which frequently include value stocks. A report by GMO examined the performance of undervalued stocks during US recessions since 1969, using valuation metrics such as price-to-book, price-to-earnings, Composite Value, and a combination of value models within their Opportunistic Value strategies. While the firm does not recommend constructing portfolios based solely on traditional price-to-book or price-to-earnings ratios, the report found that even these simple metrics have historically performed fairly well during recessions. Notably, all value models—except price-to-book—delivered stronger returns during recessionary periods (including the COVID-19 downturn) than in non-recession months over the past 55 years.
Dividend stocks have underperformed in recent years, largely due to the rising hype surrounding AI-related investments. Despite this, analysts continue to favor dividend stocks for their strong long-term potential. Morningstar’s chief US market strategist, Dave Sekera, recently shared insights on their future outlook and current valuation. Here are some comments from the analyst:
“I’m really thinking that dividend stocks are a good place to be in the first half of the year, where you can at least capture some of those high dividends for the next couple of quarters. I also like that those stocks are going to be lower in duration. So if we do have interest rates continuing to climb, those would perform better. And of course, then we also have the unknowns of exactly what a Trump presidency is going to bring here in the first quarter and even into the second quarter. So I think that there is probably more downside risks of the market in the short term than upside risk. So therefore, I like a lot of these dividend stocks, which of course are more often than not in the value category.”
Our Methodology
To create this list, we screened for dividend stocks with a forward P/E ratio under 25, as of February 26. Then, we picked companies from that list that have a reliable history of paying dividends consistently to their shareholders. We ranked the resulting list based on the number of hedge fund investors who held stakes in these companies, as per the Q4 2024 data from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A workstation in a research lab stocked with laboratory products and services.
Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 100
Forward P/E Ratio as of February 26: 23.15
Thermo Fisher Scientific Inc. (NYSE:TMO) is an American multinational biotech and life sciences company. It exceeded Wall Street expectations for the fourth quarter, reporting earnings of $6.10 per share and revenue of $11.40 billion, surpassing analyst estimates of $5.94 per share and $11.28 billion in revenue. Although biotech sector spending has remained subdued, potential interest rate cuts could provide a boost by increasing available funding.
Looking ahead, Thermo Fisher Scientific Inc. (NYSE:TMO) anticipates adjusted earnings for 2025 to range between $23.10 and $23.50 per share, aligning with market forecasts. The company is widely recognized as a top-tier player in the healthcare and pharmaceutical industries, offering investors exposure to industry growth without the risks associated with patent expirations or the need for breakthrough drug discoveries. Its revenue stream is highly diversified, with over 80% generated from recurring sources, ensuring stability and reducing investment risk.
Thermo Fisher Scientific Inc. (NYSE:TMO)’s cash flow remained stable in the most recent quarter. The company reported an operating cash flow of $3.3 billion and its free cash flow came in at $2.8 billion. In FY24, it returned $4.6 billion to shareholders through dividends and share repurchases. On February 19, the company declared a 10% hike in its quarterly dividend to $0.43 per share. This marked the company’s eighth consecutive year of dividend growth, which makes it one of the best dividend stocks on our list. As of February 26, the stock has a dividend yield of 0.32%.
Overall, TMO ranks 6th on our list of best affordable dividend stocks to buy according to hedge funds. While we acknowledge the potential for TMO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TMO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
