Playing Dividends Like Billionaire Stephen Mandel

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When assets under management start to stretch into the billions of dollars, scalping and short-term trading techniques become less scalable and profitable, and investors are often forced to make use of longer-term, value-driven, income-generating strategies. Just ask Stephen Mandel of Lone Pine Capital; he manages almost $17 billion dollars, and has been able to pocket about a tenth of that amount into his personal bank account. As a fundamental, company-specific investor, Mandel considers the importance of dividend-paying stocks to his overall return. We have compiled a list of some of his most fruitful dividend stocks; read on to see them below.

LONE PINE CAPITAL

One of Lone Pine’s top dividend plays was Kinder Morgan Inc. (NYSE:KMI). With a dividend yield hovering around 4%, the stock provided both great returns in 2012 (up over 17%) as well as sizable quarterly income. KMI recently reported fourth quarter earnings on January 17th, missing some consensus estimates but improving numbers across the board compared to the same period last year. Operating earnings, revenue, and their quarterly dividend all increased; they also projected a higher dividend target for 2013. The company operates in the energy transport and storage industry and is a favorite of Bain Capital.

Mandel searched for value under the Equator in the Brazilian bank Banco Santander Brasil SA (NYSE:BSBR). BSBR is an American Depository Receipt traded on the New York Stock Exchange, meaning that it trades in US markets but represents an interest in a foreign company. The stock lost about a quarter of its value in the past year and is currently priced under $7.50; the poor share performance certainly would tarnish any of the dividends earned through their 3.5% yield. Despite this, BSBR consistently beat earnings last year and is expected to perform positively in 2013, with the current price planted at 25% away from one year mean price targets. We are apprehensive to suggest this investment, as performing due diligence on a foreign company can be full of pitfalls. Billionaire Jim Simons of Renaissance capitulated on most of his position going into the third quarter of last year, but you can see what remains here.

Another stock on Lone Pine’s list is the department store and retailer Kohl’s Corp. (NYSE:KSS). Their dividend yield of 2.8% is more than modest and augments their fairly low price-to-earnings ratio of 10. Perhaps in part due to their lukewarm performance in 2012, many sell-side analysts are fairly neutral about Kohl’s, projecting a positive upswing eventually but with the majority recently downgrading the stock from buys and advising to hold. Billionaire Steve Cohen of SAC Capital Advisors recently loaded into his bullish call position in KSS (see his other holdings here).

Continue reading to see where else Mandel sought dividend income.

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