In this article, we will analyze the best dividend-paying stocks according to quant hedge fund AQR.
Only a handful of hedge funds have pursued unique investment strategies, and Cliff Asness’ Applied Quantitative Research, or AQR Capital, stands out among them. Known for its quantitative value strategies, Asness co-founded AQR in 1998 after working at Goldman Sachs. He and his partners developed the firm’s investment approach during their time in the University of Chicago’s Ph.D. program, emphasizing value and momentum strategies. These distinct approaches have delivered strong results for the fund over the years. In fact, AQR’s longest-running multistrategy fund returned 18.5% last year after fees, and had its best year in 2022, with a 43.5% gain. In January 2023, Asness forecasted that buying undervalued companies while shorting overvalued ones in particular sectors would be especially advantageous for that year.
Given the growing focus on generative AI and machine learning, Asness mentioned that his natural inclination is to be contrarian. However, he acknowledges that he needs to move past this instinct because he recognizes significant opportunities in machine learning. During a recent Bloomberg Invest conference, Asness highlighted that they increasingly rely on automated decision-making at AQR, expressing a belief that the machine might have a slight edge over human judgment. The firm’s improved performance in recent years is partly attributed to market cycles, but it has also implemented some changes.
Though Asness is now directing his focus toward artificial intelligence, diversification has always been a fundamental aspect of his investment strategy. He believes that concentrating investments into a single asset does not adequately address the inherent risks in financial markets. According to Asness, the rationale for preferring a diversified portfolio lies in its potential to provide a higher return for the risk taken, rather than simply offering a higher expected return.
When discussing diversification, different investment strategies can have varying advantages. Dividend investing is particularly popular among investors. In his paper published in the Financial Analysts Journal, which earned him the Graham and Dodd Award for the best paper of the year twice, Asness emphasized the value of dividends. He explained that companies that distribute higher dividends generally experience stronger earnings growth over the following decade compared to those that pay out less. Asness elaborated that substantial dividend payouts often indicate a company’s confidence in its future prospects, as firms are reluctant to cut dividends and typically wouldn’t pay them if they anticipated poor performance. Furthermore, companies paying large dividends must be more selective with their investment projects, potentially leading to wiser investment choices. On the other hand, companies that pay minimal dividends might be either struggling (as seen with inflated earnings in 1999) or engaging in “empire building,” where managers, having plenty of cash, may invest imprudently in less profitable ventures.
Asness’s preference for dividend stocks is also apparent in his Q2 2024 portfolio, which features a significant number of dividend-paying equities. With that in mind, we will take a look at some of the best dividend-paying stocks according to AQR Capital.
Cliff Asness of AQR Capital Management
Our Methodology:
For this article, we analyzed AQR Capital Management’s 13f portfolio as of the second quarter of 2024 and selected the top dividend stocks that offered yields of at least 1% as of August 22. The stocks are ranked in ascending order of the fund’s stake in them during Q2 2024.
We also measured overall hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Chubb Limited (NYSE:CB)
AQR Capital’s Stake Value: $296,412,873
Dividend Yield as of August 22: 1.34%
Chubb Limited (NYSE:CB) is an American Swiss insurance company, based in Zurich, Switzerland. The company offers a wide range of related products and services to its consumers. During the second quarter of 2024, AQR Capital increased its position in the company by 31%. The hedge fund owned over one million CB shares at the end of the quarter, worth over $296 million. The company made up 0.45% of the firm’s 13F portfolio.
Similar to dividend stocks, insurance companies typically don’t offer rapid, large-scale returns. However, they are dependable businesses that consistently grow over time due to their role in managing risk. Chubb Limited (NYSE:CB)’s approach centers on developing personalized customer relationships through a network of independent agents, providing coverage options that are often not easily available with other insurers. The stock has gained over 19% since the start of 2024 and its 12-month returns came in at over 36%.
Chubb Limited (NYSE:CB) is a strong dividend payer with stable cash generation. In the second quarter of 2024, the company reported an operating cash flow of $4.08 billion and its free cash flow amounted to $3.57 billion. This cash was enough to pay $369 million worth of dividends to shareholders during the quarter. The company’s overall revenue came in at $11.78 billion, which showed a 10.29% growth from the same period last year.
Chubb Limited (NYSE:CB), one of the best dividend-paying stocks, offers a quarterly dividend of $0.91 per share. In May this year, the company achieved its 31st consecutive year of dividend growth. As of August 22, the stock has a dividend yield of 1.34%.
At the end of Q2 2024, 46 hedge funds tracked by Insider Monkey held stakes in Chubb Limited (NYSE:CB), compared with 53 in the previous quarter. The collective value of these stakes is more than $8 billion. With over 27 million shares, Warren Buffett’s Berkshire Hathaway was the company’s largest stakeholder in Q2.
9. Citigroup Inc. (NYSE:C)
AQR Capital’s Stake Value: $302,046,065
Dividend Yield as of August 22: 3.72%
Citigroup Inc. (NYSE:C) is an American multinational investment bank and financial services company. The bank is actively working to enhance its performance. Although its balance sheet remains strong, as indicated by a CET1 ratio of 13.6%, it is also exploring additional strategies to bolster the business. The bank’s wealth management division has started the process of selling its trust administration and fiduciary services platform. This move is part of CEO Jane Fraser’s multi-year plan aimed at improving the bank’s performance, reducing costs, and optimizing operations. In addition, the company is upgrading its infrastructure to serve clients better and automating processes to strengthen controls. In its most recent earnings report, the bank underscored its dedication to ongoing transformation and strategic execution to achieve its medium-term objectives and improve returns over time.
Citigroup Inc. (NYSE:C) grew its quarterly dividend by 5.7% in June this year, after passing the annual Federal Reserve stress test. It is one of the best dividend-paying stocks according to AQR Capital as the company has never missed a dividend in over 34 years. Currently, the company pays a quarterly dividend of $0.56 per share and has a dividend yield of 3.70%, as of August 22. Its payout ratio is also lower with just 34% and the bank returned $1 billion to shareholders in common dividends during the second quarter of 2024.
Investors also noted Citigroup Inc. (NYSE:C)’s dividends and restructuring efforts. Diamond Hill Capital highlighted this in its Q1 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
During the second quarter of 2024, AQR Capital slashed its stake in Citigroup Inc. (NYSE:C) by 16%. The hedge fund owned nearly 5 million shares in the company, worth over $302 million. The company represented 0.46% of the firm’s 13F portfolio at the end of Q2.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 85 funds owned stakes in Citigroup Inc. (NYSE:C), down from 94 in the previous quarter. The consolidated value of these stakes is over $10.6 billion.
8. Comcast Corporation (NASDAQ:CMCSA)
AQR Capital’s Stake Value: $339,222,683
Dividend Yield as of August 22: 3.13%
Comcast Corporation (NASDAQ:CMCSA) is a Pennsylvania-based telecommunications and media conglomerate. It is one of the world’s largest and most diverse businesses in the world. The stock is down by over 10% year-to-date and fell by nearly 4% between July 23 and 24 when the company announced its Q2 earnings. In its Studios and Theme Parks division, the company encountered challenges, falling by 27% and 10.6% from the same period last year, respectively. The company’s overall revenue for the quarter came in at $29.6 billion, down 3% on a YoY basis.
Despite the challenges, several other segments of Comcast Corporation (NASDAQ:CMCSA) experienced growth. The media division saw a return to Adjusted EBITDA growth, largely due to Peacock, its streaming service, which achieved its strongest year-over-year improvement for any quarter since its 2020 launch. A highlight of Comcast’s second-quarter results was the performance of Peacock. Streaming subscribers grew by 38% during the quarter, reaching 33 million, while losses decreased to $348 million, compared to $651 million in Q2 2023.
Comcast Corporation (NASDAQ:CMCSA) generated strong cash during the quarter, which is good news for income investors. The company’s operating cash flow was $4.7 billion and it generated $1.3 billion in free cash flow. It remained committed to its shareholder obligation, returning $3.4 billion to investors through dividends and share repurchases.
On July 23, Comcast Corporation (NASDAQ:CMCSA) declared a quarterly dividend of $0.31 per share, which was in line with its previous dividend. Overall, the company has raised its payouts for 16 consecutive years, which makes CMCSA one of the best dividend-paying stocks on our list. The stock’s dividend yield on August 22 came in at 3.13%.
AQR Capital boosted its stake in Comcast Corporation (NASDAQ:CMCSA) significantly by 93% during the second quarter of 2024 and now owns over 8.7 million shares in the company. The hedge fund’s CMCSA stake was valued at roughly $340 million at the end of the quarter. The company made up 0.51% of the firm’s 13F portfolio.
As of the close of Q2 2024, 61 hedge funds in Insider Monkey’s database held stakes in Comcast Corporation (NASDAQ:CMCSA), compared with 63 in the preceding quarter. These stakes have a total value of over $3.6 billion. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q2.
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