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Should You Follow Billionaire Activist Dan Loeb into His Dividend Picks?

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Billionaire activist Dan Loeb mostly invests in companies that trade below their intrinsic value and try to push for changes in order to maximize the shareholder value. However, among his picks, many companies also represent solid investments that can generate value over the long-term without the need for a catalyst like an activist campaign. In its last 13F filing, Loeb’s Third Point revealed an equity portfolio worth $10.60 billion, consisting of 32 positions. Some of Loeb’s picks include companies that pay a decent dividend, which proves their financial stability and also allow investors to benefit from the steady payments. In this article we are going to take a look at five of Loeb’s dividend picks.

Third Point

Dan Loeb is one of the over 700 investors, whose 13F filings we monitor on a quarterly basis in order to identify stocks that they are collectively bullish on and use this information in order to beat the market. However, according to our research, imitating these investors’ most popular picks overall is not the best approach, because these stocks represent mostly large- and mega-cap popular companies that are more efficiently priced. On the other hand, following smart money investors into their best small-cap ideas can generate returns nearly one percentage points above the market per month. Our strategy involves imitating a portfolio of the 15 most popular small-caps among the investors from our database and it has managed to return 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

Dan Loeb
Dan Loeb
Third Point

Dow Chemical Co (NYSE:DOW) represents Loeb’s fourth-largest holding, the fund amassing 23.50 million shares worth $996.40 million. During the third quarter, as the stock lost 16%, Third Point raised its position by 500,000 shares. Third Point has two representatives on Dow Chemical Co (NYSE:DOW)’s board and last year tried to pursue the company to spin off its petrochemical business. However, earlier this year, Dow announced plans to separate its chlorine business and to sell it to Olin Corporation (NYSE:OLN) for $2.0 billion in cash and 50.5% of Olin’s stock. Despite the third-quarter drop, Dow Chemical’s stock is 12% in green year-to-date and trails a dividend yield of 3.60%. In an investor conference call last month, billionaire Leon Cooperman‘s Omega Advisors revealed holding 1.7% of its assets in Dow Chemical Co (NYSE:DOW) and issued a 12% growth rate outlook for the stock.

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In Yum! Brands, Inc. (NYSE:YUM), Third Point also increased its stake by acquiring some 8.03 million shares during the third quarter. At the end of September, the fund held 23.50 million shares worth $927.42 million. Loeb initiated a stake in Yum Brands in the first quarter, saying in the investor letter that the company should be able to overcome its problems in China. In October, Yum! Brands, Inc. (NYSE:YUM) said that it plans to spin-off its Chinese business into a separate publicly-traded company. The stock had a strong run in the first six months of 2015, but the decline in the last couple of months has offset those gains and sent the stock 4% in the red in year-to-date terms. With a dividend of $0.46 per quarter, Yum! Brands, Inc. (NYSE:YUM)’s stock has a dividend yield of 2.65%. Doug Silverman and Alexander Klabin’s Senator Investment Group held 3.85 million shares of Yum! Brands at the end of September.

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On the next page we are going to take a look at one of Loeb’s new holdings, Kraft Heinz Co (NASDAQ:KHC), as well as two companies, in which the investor cut its stake during the third quarter, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) and J M Smucker Co (NYSE:SJM).

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