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Dividend Picks from Lee Cooperman’s Omega Advisors

The Great Lee Cooperman began his career at Goldman Sachs in investment research. After spending 25 years there, working his way up to become general partner, chairman and CEO of Goldman Sachs Asset Management, Cooperman left the company to start his own fund – Omega Advisors. The year was 1991. He had $450 million in capital and was just 50 years old. Since then, Cooperman has enjoyed great success, becoming one of the world’s richest men and his Omega Advisors is one of the industry’s most successful hedge funds. At the end of 2011, Cooperman’s fund had a 71 position portfolio valued at $3.97 billion according to a 13F filed on February 10.


Leon Cooperman’s strategy has always been to look at the best performing and largest companies within a sector, then invest in those that are priced best from within that group. He also prefers a longer investment timeframe, choosing stocks that will deliver over time as opposed to shorter term plays based on market inefficiencies. Cooperman also seems to like dividend stocks. His Omega Advisers portfolio had 28 dividend yielding stocks in it at the end of the fourth quarter – that’s roughly 40% of the total portfolio.

Sallie Mae

The largest dividend-yielding position in the Omega Advisors portfolio is SLM Corp (SLM). Commonly known as Sallie Mae, SLM is the number one financial services company specializing in education loans and related services, like college savings programs, tuition insurance and default aversion work. Right now, Sallie Mae is priced very low, at 7.39 times its forward earnings and 1.76 times its book value. It recently traded at $16.22 a share, near the upper end of its 52-week range ($10.91 to $17.11). Analysts give the company a mean one-year target estimate of $19.40. If they are right, investors buying in now would have a return of nearly 19.6% on their investments, plus an additional 3.1% from Sallie Mae’s 50 cents dividend.

Omega Advisors had $235.43 million invested in the company at the end of the fourth quarter, or 5.9% of its total portfolio value. Cooperman opened a 4.08 million share stake in the company during the fourth quarter 2007, and he has slowly added to it since, selling a portion of his shares only three times. By the end of the fourth quarter, there were 17.57 million shares in Omega Advisors’ portfolio. Sallie Mae has a strong track record and it is likely to perform well going forward. People are going to continue to go to college and the vast majority will require some degree of financing – and Sallie Mae’s earnings estimates reflect that. Analysts predict that the company’s earnings will increase by an average of 7.30% a year over the next five years. Lee Ainslie’s Maverick Capital is also a fan. The fund initiated a 12.93 million share position in the company during the fourth quarter. And, we have to agree. Sallie Mae is very well-priced right now.

Atlas Pipeline Partners

The second largest dividend yielding stock in Cooperman’s portfolio is Atlas Pipeline Partners (APL). Atlas Pipeline is a natural gas gathering, processing and treating company. Its operations are primarily clustered in the Anadarko and Permian basins of the southwestern and mid-continental US and the Appalachian region of the US Northeast.

Omega Advisors had 5% of its portfolio invested in the stock at the end of the fourth quarter, in a 5.36 million share position valued at $199.24 million at the end of December. Cooperman originally initiated a stake in Atlas Pipeline in the fourth quarter 2007. He bought 2.19 million shares. The average price that quarter was $45.55. Cooperman kept increasing his position in every quarter save three until reaching a peak of $5.74 million shares at the end of the third quarter 2011. The average share price that quarter was $31.42. Last quarter, Cooperman reduced his stake in the company by 378,300 shares when the average share price was $33.71.

Atlas Pipeline recently traded at $36.84 a share, near the higher end of its 52-week range of $24.12 to $40.89. The company is expected to reach $42.33 a share in the next year – fully recovering from the year but still short of its trade price in the fourth quarter 2007, when Cooperman bought in. In addition to the upside, Atlas Pipeline pays a high $2.20 dividend (6.00% yield) and it is priced fairly low, trading at 14.4 times its forward earnings and 1.5 times its book value according to Yahoo Finance. Analysts estimate an average earnings growth of 19.50% a year for the next five years, versus expectations of 11.22% for its industry and 10.58% for the market.

We recommend investors to buy Atlas Pipeline as part of a well-diversified high dividend portfolio. Investors today can easily construct such a portfolio with average yields of more than 5% vs. 2% for the 10-year Treasuries. This well diversified portfolio will outperform the 10-year Treasuries as long as it doesn’t lose more than 3% annually over the next 10 years.

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