Huntsman, JP Morgan Chase, Macy’s Among The Dividend Stocks Loved By This $16 Billion Hedge Fund

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APPALOOSA MANAGEMENT LPDividends can help provide some stability to a volatile portfolio and boost returns. In a span that covers the last 32 years prior to 2012, the Wall Street Journal notes that dividend-paying stocks have returned an average of 8.9% annually, compared to 1.8% for non-dividend paying stocks. Per billionaire David Tepper’s 3Q 13F we have identified five high dividend-paying stocks that Tepper owned at the end of 3Q.

David Tepper founded Appaloosa Management in 1993 and now oversees nearly $16 billion in assets under management. Prior to Appaloosa, Tepper was a trader at Goldman Sachs. The fund manager continues to crush his competition in 2012, as his Palomino fund was up 13% net of fees for the first half of 2012. Appaloosa utilizes a strategy that focuses on undiversified concentrated investments (check out Tepper’s newest stock picks).

The U.S. chemical company Huntsman Corporation (NYSE:HUN) is Tepper’s 10th largest 13F holding, with a dividend that yields 2.5%. Compared to other major chemical companies, Huntsman trades the cheapest in the industry at 7.5x earnings, where Eastman is at 15x and Dow Chemical is at 23x. Huntsman has been surprising analysts with its earnings postings, and saw its most recent EPS come in at $0.70, above consensus of $0.51. We believe Huntsman offers significant value in addition to its dividend, where the stock is trading with a PEG ratio of only 0.9.

Sealed Air Corp (NYSE:SEE) is a food safety company that was a new third quarter pick for Tepper, and it pays a 3.1% dividend yield. Sealed has seen softness in its European markets, but expects organic growth to come from Latin America and Asia over the intermediate term. Other growth should come from the recent acquisition of Japan’s Diversey. The food safety products company does have a restructuring plan that should help to improve margins in 2013 and grow EPS by over 30%, despite expected revenue growth of only 1%. These restructuring efforts are expected to turnaround Sealed Air’s recent string of four straight quarters of negative EPS, and should put the company to trade at 13x forward earnings, below major peers. Billionaire Israel Englander – founder of Millennium Management – is bullish on Sealed Air, having upped his 2Q stake 100% (see Englander’s newest bullish bets).

Macy’s, Inc. (NYSE:M) is a high-end retailer that operates Macy’s and Bloomingdale stores, and pays a 2% dividend yield. Macy’s should see positive results from the upcoming holiday season, especially due to its higher-income customer base that is more insulated from the broader economy. The retailer is expected to see strong same store sales of 3% in fiscal year 2014 and 3.9% growth next year. Investors can still find value in the high-end retailer, which trades at a 12.5x trailing P/E and a mere forward P/E of 10x. Macy’s solid growth prospects put its PEG ratio at 0.9 and suggest the stock might be undervalued. Macy’s is one of the top ten retail stocks loved by hedge funds (check out our entire Top Ten List).

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