Andreas Halvorsen is the Chief Investment Officer of Viking Global Investors, a $17-billion fundamentals-oriented long/short global equity fund. Halvorsen has been running this hedge fund since 1999, but had gained his reputation as a prolific fund manager while working for hedge fund legend Julian Robertson’s Tiger Management. With total returns of 19%, net of fees, since inception, Halvorsen has been one of the most successful hedge fund managers. His Viking Global netted 7.6% last year, outperforming most other hedge funds, which, on average, lost 5% for the year.
Recently, Viking Global filed its 13F with the Securities and Exchange Commission, revealing its equity holdings at the end of the third quarter. Halvorsen’s fund terminated positions in the pharmaceutical giant Pfizer Inc. (NYSE:PFE) and Dollar General Corp. (NYSE:DG), and established large new stakes in the major U.S. natural gas pipeline operator Williams Companies, Inc. (NYSE:WMB) and retail behemoth Wal-Mart Stores, Inc. (NYSE:WMT). The three largest positions in Halvorsen’s portfolio are News Corp (NASDAQ:NWS), Apple Inc. (NASDAQ:AAPL), and Visa Inc (NYSE:V). Here is a quick overview of his five new dividend-paying picks.
Williams Companies is a new position in Halvorsen’s third-quarter portfolio, valued at more than $538 million at the end of the quarter. The company is the owner and operator of natural gas pipeline systems in the United States. Williams Companies is yielding 4.0% on a payout ratio of nearly 300% of trailing earnings and 120% of free cash flow. Its peers Kinder Morgan Inc (NYSE:KMI) and Enbridge Inc (NYSE:ENB) are yielding 4.3% and 2.9%, respectively. Over the past five years, Williams Companies’ EPS and dividends expand at average annual rates of 18.7% and 24.2%, respectively. Analysts expect the company to grow its EPS at an average annual rate of about 12.9% for the next five years. The company has benefited and will continue to capitalize on the shale gas boom in North America, which is driving the record production of natural gas. Even though the company generates substantial operating cash flow, large capital spending projects consume most of that cash flow. Despite its large dividend payout ratios, Williams Companies plans to hike dividends each quarter this year and over the next two years by a cumulative 30% over the three-year period. The stock has a ROE of 12%. In terms of valuation, the stock is priced on a forward P/E ratio of 26.8, trading at a major premium to the pipelines industry (boasting a forward P/E of 16.1). Competitors Kinder Morgan and Enbridge have lower forward P/Es of 26.2 and 21.4, respectively. Billionaire Leon Cooperman of Omega Advisors is also bullish about this stock.
Wal-Mart was also a new position in Viking Global’s fund in the third quarter. The position was worth $161 million at the quarter’s end. Wal-Mart, the largest U.S. retailer, is currently yielding 2.3% on a payout ratio of 33%. Its smaller competitors Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST) are yielding 2.3% and 1.1%, respectively. Over the past five years, Wal-Mart expanded its EPS and dividends at average annual rates of 9.2% and 13.5%, respectively. Analysts forecast the company’s EPS will grow at a 5-year CAGR of 9.4% per year for the next five years. Wal-Mart is a major value play that stands to benefit from the new trend of the customers’ constant pursuit of value and bargain hunting. Moreover, Wal-Mart is benefiting from the weak employment market, in which buyers flock to deep discounters. Given that the emerging markets are going to be the locomotive of growth in at least the medium term, Wal-Mart, with a wide network of stores in emerging markets, stands ready to capitalize on their robust growth. Wal-Mart’s stock has a free cash flow yield of 3.1% and ROE of 24%. The stock is priced at a forward P/E of 14.1, below Costco’s 21.0 but slightly above Target’s 13.8. Legendary investor Warren Buffett owns more than $3.4 billion in this stock. Bill & Melinda Gates Foundation Trust (check out the Trust’s top picks) established a $782-million stake in the company in the previous quarter.