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Hedge Funds Are Piling Into These Dividend Stocks: Part II

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Generally speaking, dividend yield of a stock is not by itself a prerequisite for investing in that stock. Hedge fund managers analyze a variety of metrics and figures trying to identify profitable plays that would help them beat the market by a significant margin to justify their high fees to investors. On the other hand, a company that has a solid dividend yield and a great dividend history also shows financial strength and the management’s commitment towards returning capital to shareholders. With that in mind, we have decided to look at some companies that have high dividend yields, but also enjoy a lot of attention from investors.

Barry Rosenstein JANA PARTNERS

As we track hundreds of funds, every quarter we identify several thousand stocks in which these funds prefer to invest. Earlier, we compiled a list of the five most popular dividend stocks by identifying five companies that sport a dividend yield of at least 1.40%. This time, we are taking it to the next level and looking into the five most popular stocks among funds that we track, but which also have a dividend yield of at least 4% and have been paying dividends for the last decade.

The reason we are doing this is simple. Tracking the activity of some of the greatest investment firms in the world is part of our strategy, and we obtain tons of data after each round of 13F filings. Our empirical research has determined that the 30 most popular stock picks among hedge funds have been able to beat the market by around 2.0 percentage points per year. This return is not even nearly enough to justify the high fees that people that invest money with these hedge funds must pay. On the other hand, small-cap picks have been able to return around 18 percentage points annually between 1999 and 2009.

However, it is still interesting to see in which companies funds prefer to put their capital. So, let’s see which dividend stocks investors from our database preferred during the last quarter of 2014.

On the first spot stands Williams Companies Inc (NYSE:WMB), in which 77 funds from our database reported ownership of around $6.50 billion worth of stock. Despite a small slump in its revenues from the previous quarter, this large-cap midstream Oil & Gas company increased its dividend for the first quarter to $0.58 from $0.57, which gives it a yield of 4.85%. Moreover, Williams Companies Inc (NYSE:WMB) has been consistently increasing its dividends over the last 10 years, from $0.05 paid in March, 2005. Williams Companies’ dividend yield is in the upper tier among large-cap midstream companies; by comparison, Oneok Partners LP (NYSE:OKS) sports the highest dividend yield of 7.34%. Keith Meister’s Corvex Capital was the largest shareholder of Williams Companies Inc (NYSE:WMB), holding 41.68 million shares valued at $1.87 billion at the end of 2014; the position accounted for over 22% of the fund’s equity portfolio and was the largest in terms of value.

At the end of 2014, 71 funds reported holding shares of Kinder Morgan Inc (NYSE:KMI) in their equity portfolios, the aggregate value of their positions amounting to $2.07 billion. Kinder Morgan Inc (NYSE:KMI) is another midstream Oil & Gas company, which paid a dividend of $0.45 for the fourth quarter and has been increasing the payment by at least $0.01 every quarter since going public in 2011. The stock of Kinder Morgan returned 26% in the last year, outperforming the industry by around 14 percentage points. Billionaire Barry Rosenstein‘s JANA Partners is one of the shareholders of Kinder Morgan, holding 16.01 million shares as of the end of 2014. Mr. Rosenstein is one of 10 billionaire investors that owned shares of Kinder Morgan Inc (NYSE:KMI), according to our database.

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