How The Biggest Hedge Fund in the World Finds Dividends

Microchip Technology has returned 24% year-to-date and its dividend yield of 3.5% is a handsome bonus. Interestingly, Microchip pays out over 200% of its earnings as dividends at the moment, and with modest but not mind-blowing earnings growth likely on the horizon, a cut may be in order. Still, even if Microchip’s yield falls below the 3% mark, a secularly bullish macro environment for the company’s microcontrollers should continue to provide a catalyst for further appreciation. Wall Street expects shares to have an upside near the $45 range; Microchip presently trades just above $40 a share.

A couple other names

Just outside of Dalio’s top 30 sits a couple other names with yields above 3%: Cenovus Energy Inc (TSE:CVE) and Maxim Integrated Products Inc. (NASDAQ:MXIM). Similar to some of the other companies on this list, both Cenovus and Maxim sport dividend payout ratios that are in “danger territory,” but future growth prospects look promising.

Each of these stocks also has their own macro thesis that justifies Dalio’s stake, from Cenovus’ ability capitalize off of Canadian oil sands and natural gas growth, to Maxim’s recent purchase of Volterra Semiconductor. The latter’s Volterra acquisition should expand its cloud computing business.

On the whole, it doesn’t appear that Ray Dalio and Bridgewater are too concerned about unsustainable dividend payouts. Rather, when selecting higher yield stocks, they choose to focus on names that have strong earnings momentum with further growth expected in the future, regardless of if a dividend cut might come to fruition. This is at the very least an interesting observation to consider, and we’d expect you to keep an eye on these positions in Dalio’s next 13F filing.

Disclosure: none

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