In this article, we discuss the 10 best dividend stocks to buy according to Diamond Hill Capital.
Ric Dillon founded Diamond Hill Capital, which uses a research-driven approach to deliver stable returns to shareholders, in 2000. The fund focuses on long-term investments by lining up its interests with its clients. In 2018, Dillon retired from the firm, with Heather Brilliant currently serving as the chief executive officer of Diamond Hill Capital. As of July, the fund had $27.2 billion in assets under management.
In one of her recent interviews with CNBC, Heather Brilliant mentioned that investors should take a long-term perspective and look for companies that are priced for a possible recession. In this regard, investors should focus on companies with a ‘strong competitive advantage’ where it’s easier to forecast their performance relative to their competitors in the current environment. She further said that her fund prefers tech stocks that are a fundamental part of the economy and offer long-term investment opportunities.
Over the years, Diamond Hill Capital has delivered steady returns to shareholders. The firm’s Small Cap Fund has returned 9.27% on average since its inception in 2000 while its 3-year returns came in at 7.43%. In addition to this, its Mid Cap Fund gained 7.38% in July, while its Large Cap Fund surged 7.50%.
As of the end of Q2 2022, Diamond Hill Capital had a 13F portfolio valued at over $22.8 billion, compared with nearly $26.9 billion in the previous quarter. The hedge fund had investments in several sectors, with finance taking up the largest chunk of the portfolio. Moreover, dividend stocks also make up a significant portion of the fund’s portfolio. Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) were some of the firm’s major holdings. However, in this article we’ll discuss the best dividend stocks in Diamond Hill Capital’s portfolio in Q2.
Ric Dillon of Diamond Hill Capital
Our Methodology:
For this article, we selected dividend stocks from Diamond Hill Capital’s 13F portfolio as of Q2 2022. The companies are ranked according to the value of Diamond Hill Capital’s stake in them.
10 Best Dividend Stocks to Buy According to Diamond Hill Capital
10. Caterpillar Inc. (NYSE:CAT)
Diamond Hill Capital’s Stake Value: $340,506,000
Caterpillar Inc. (NYSE:CAT) is an Illinois-based manufacturer of construction and mining equipment, diesel, and natural gas engines. In August, Credit Suisse raised its price target on the stock to $236 with an ‘Outperform’ rating on the shares as the firm sees strong demand across all segments of the company.
Diamond Hill Capital opened its position in Caterpillar Inc. during the third quarter of 2020, purchasing shares worth $162 million. In Q2 2022, the hedge fund owned roughly 2 million CAT shares, worth $341 million. The company represented 1.48% of the firm’s 13F portfolio and is a prominent holding of the firm along with Alphabet Inc., Amazon.com, Inc., and Microsoft Corporation.
On June 8, Caterpillar Inc. declared an 8% hike in its quarterly dividend to $1.20 per share. This was the company’s 28th consecutive year of dividend growth. The company has raised its dividends at a CAGR of 7.95% over the last five years. As of August 31, the stock’s dividend yield stood at 2.57%.
At the end of Q2, 45 of the hedge funds tracked by Insider Monkey’s database owned stakes in Caterpillar Inc., compared with 54 in the previous quarter. The collective value of those 45 stakes was over $3.25 billion. With a position worth over $1.3 billion, Fisher Asset Management owned the largest position in the company on June 30.
Diamond Hill Capital mentioned Caterpillar Inc. in its Q1 2022 investor letter. Here is what the firm had to say:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
9. The Home Depot, Inc. (NYSE:HD)
Diamond Hill Capital’s Stake Value: $344,666,000
The Home Depot, Inc. (NYSE:HD) is an American home improvement company and the largest home retailer in the U.S. The company provides renovation-related services and products to its consumers. In Q2, Diamond Hill Capital owned over 1.2 million shares in the company, increasing its position by 2%. The fund’s total HD stake was valued at $345 million, which represented 1.5% of its 13F portfolio.
In August, Truist lifted its price target on The Home Depot, Inc. to $399 and kept a ‘Buy’ rating on the shares. The firm highlighted the company’s strong business trends and expects it to manage profitability better than its peers.
The Home Depot, Inc. has paid dividends to shareholders for 142 straight quarters and has raised its payouts 14 years in a row. The company pays a quarterly dividend of $1.90 per share, which gives the stock a yield of 2.59% as of August 31.
As per Insider Monkey’s database, 80 hedge funds owned stakes in The Home Depot, Inc. on June 30, growing from 75 in the previous quarter. Those stakes had a total value of over $5.3 billion, compared with $5.6 billion worth of stakes owned by hedge funds on March 31.
Diamond Hill Capital mentioned The Home Depot, Inc. in its Q1 2022 investor letter. Here is what the firm had to say:
“Home Depot shares underperformed as continued solid fundamental results were outweighed by concerns about the impact rising mortgage rates may have on the housing market and general inflationary pressures potentially leading to a consumer spending slowdown. We view the long-term prospects and multi-year fundamental outlook as unchanged.”
8. Becton, Dickinson and Company (NYSE:BDX)
Diamond Hill Capital’s Stake Value: $346,590,000
Becton, Dickinson and Company (NYSE:BDX) is a New Jersey-based multinational medical technology company that specializes in medical devices and instrument systems. The company holds one of the strongest dividend growth records in the medical industry, raising its dividend consistently for the past 50 years. It currently offers a quarterly payout of $0.87 per share, with the stock yielding 1.37% as recorded on August 31.
Diamond Hill Capital first invested in Becton, Dickinson and Company during the fourth quarter of 2021, with shares worth over $395 million. In Q2 2022, the hedge fund owned 1.4 million shares in the company, valued at roughly $347 million. The company represented 1.51% of the fund’s 13F portfolio.
In June, Wells Fargo upgraded Becton, Dickinson and Company to ‘Buy’ with a $275 price target. The firm mentioned that BDX is well-positioned to weather the macro challenges because of its solid fundamentals and strong balance sheet.
According to Insider Monkey’s data, Generation Investment Management was the largest stakeholder of Becton, Dickinson and Company in Q2, owning a stake worth roughly $790 million. In addition to this, 42 hedge funds tracked by our database owned stakes in the medical device company in Q2, worth over $2.1 billion.
ClearBridge Investments mentioned Becton, Dickinson and Company in its Q4 2021 investor letter. Here is what the firm had to say:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like medical equipment (medical device and laboratory supplier Becton Dickinson). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
7. Union Pacific Corporation (NYSE:UNP)
Diamond Hill Capital’s Stake Value: $367,490,000
Union Pacific Corporation (NYSE:UNP), a Nebraska-based transport company, is one of the latest acquisitions of Diamond Hill Capital. The hedge fund initiated its position in the company in Q2, buying over 1.7 million shares, worth nearly $368 million. The company accounted for 1.6% of the fund’s 13F portfolio.
On July 28, Union Pacific Corporation declared a quarterly dividend of $1.30 per share, raising it by 10% in May. The company has paid uninterrupted dividends on its common stock for 123 years and has raised its payouts consistently for 15 years. As of August 31, the stock’s dividend yield stood at 2.31%.
In July, Credit Suisse initiated its coverage of the stock with an ‘Outperform’ rating and a $255 price target, appreciating its structural advantages and business fundamentals.
At the end of June 2022, 65 hedge funds tracked by Insider Monkey owned stakes in Union Pacific Corporation, declining from 89 in the previous quarter. Those stakes held a combined value of over $6.36 billion. Fisher Asset Management was the company’s leading stakeholder with a $1.1 billion position in the stock.
Carillon Tower Advisers mentioned Union Pacific Corporation in its Q1 2022 investor letter. Here is what the firm had to say:
“Union Pacific benefited from rising oil prices, which typically bring more demand for rail shipping as opposed to moving freight by truck. Rail transportation can be much more fuel-efficient than over-the-road trucking.”
6. Parker-Hannifin Corporation (NYSE:PH)
Diamond Hill Capital’s Stake Value: $392,195,000
Parker-Hannifin Corporation (NYSE:PH) is an Ohio-based company that specializes in motion and control technologies. In Q2, the company was a part of 35 hedge funds’ portfolios, compared with 39 in the previous quarter. The stakes owned by those hedge funds had a total value of over $1 billion.
Parker-Hannifin Corporation is one of the oldest holdings of Diamond Hill Capital, as the hedge fund started investing in the company in 2010. In Q2 2022, the fund increased its position in the company by 2%, which lifted its total stake to over $392 million. The company made up 1.71% of the fund’s 13F portfolio.
Parker-Hannifin Corporation has one of the longest dividend growth streaks in the S&P 500 index, raising its dividends consistently for the past 65 years. The company currently pays a quarterly dividend of $1.33 per share, with shares having a dividend yield of 1.97% as of August 31.
Highlighting the company’s strong fiscal Q4 results and revenue growth, Mizuho raised its price target on Parker-Hannifin Corporation in August to $300 while maintaining its ‘Neutral’ rating on the shares.
In addition to Alphabet Inc., Amazon.com, Inc., and Microsoft Corporation, Parker-Hannifin Corporation is another important dividend stock in Diamond Hill’s portfolio.
Oakmark Funds mentioned Parker-Hannifin Corporation in its Q2 2022 investor letter. Here is what the firm had to say:
“A former long-time holding, Parker Hannifin made its way back into the Fund this quarter. We believe investors’ perception of the company as a short-cycle, diversified manufacturer that’s heavily tied to industrial production has become stale. Since becoming CEO in 2015, Thomas Williams has vastly improved operations and shifted the portfolio to a longer cycle, higher growth, and higher return end markets. With the expected closing of the Meggitt acquisition this calendar year, Parker Hannifin’s highly depressing aerospace segment will become its largest end market. We anticipate a rebound in aerospace revenue, which combined with the company’s strong position in attractive businesses like clean energy technologies and factory automation-should further accelerate revenue growth. Parker Hannifin trades at a discount to other high-quality industrials, which we believe is unwarranted since its growth and returns should be as good or better than peers. At 12x next year’s cash earnings, Parker Hannifin is an attractive investment, in our view.”
5. Pfizer Inc. (NYSE:PFE)
Diamond Hill Capital’s Stake Value: $477,807,000
Pfizer Inc. (NYSE:PFE) is a multinational pharmaceutical and biotech company headquartered in New York. On June 23, the company declared a quarterly dividend of $0.40 per share, in line with its previous dividend. The company maintains a 12-year streak of consistent dividend growth, becoming one of the best dividend stocks in Diamond Hill’s portfolio. As of August 31, the stock’s yield came in at 3.49%.
Diamond Hill Capital started investing in Pfizer Inc. during the fourth quarter of 2010, owning shares worth over $194 million. In Q2 2022, the hedge fund owned over 9 million PFE shares with a total value of $478 million. The company represented 2.08% of the fund’s portfolio.
At the end of Q2, 70 hedge funds tracked by Insider Monkey owned stakes in Pfizer Inc., down from 79 in the previous quarter. The total value of those stakes was over $2.8 billion. Ken Griffin and Cliff Asness were some of the company’s major stakeholders in Q2.
ClearBridge Investments mentioned Pfizer Inc. in its Q4 2021 investor letter. Here is what the firm had to say:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks. (Click here for the full text)
4. Bank of America Corporation (NYSE:BAC)
Diamond Hill Capital’s Stake Value: $509,009,000
Bank of America Corporation (NYSE:BAC) is a multinational investment bank and financial services company that provides services in credit cards, loans, and mortgages. Diamond Hill Capital owned over 16.3 million shares in the company on June 30, boosting its stake by 8% during Q2. The fund’s total stake in the company amounted to over $509 million, which represented 2.22% of its 13F portfolio.
On July 20, Bank of America Corporation hiked its quarterly dividend by 5% to $0.22 per share. This was the company’s ninth consecutive year of dividend growth. As of August 31, the stock’s dividend yield came in at 2.58%.
In July, RBC Capital maintained its ‘Outperform’ rating on Bank of America Corporation, acknowledging the company’s diversified business model in the current economic landscape. The firm further appreciated the company’s strong revenue growth.
As of the close of Q2, 99 hedge funds tracked by Insider Monkey owned stakes in Bank of America Corporation, the same as in the previous quarter. Those stakes were collectively valued at nearly $36 billion. Berkshire Hathaway was the company’s leading stakeholder in Q2, owning an ownership stake worth over $31 billion.
Miller Value Partners mentioned Bank of America Corporation in its Q1 2022 investor letter. Here is what the firm had to say:
“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.
A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).
We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”
3. PepsiCo, Inc. (NASDAQ:PEP)
Diamond Hill Capital’s Stake Value: $538,121,000
An American multination food and snack company, PepsiCo, Inc. (NASDAQ:PEP) is one of the strongest dividend payers in the U.S. market. In 2022, the company extended its dividend growth streak to 50 years, and has a 5-year dividend CAGR of 7.39%. The company currently pays a quarterly dividend of $1.15 per share, with the stock’s dividend yield coming in at 2.65% as recorded on August 31.
PepsiCo, Inc. was the fourth-largest holding of Diamond Hill Capital on June 30, representing 2.35% of its portfolio. The hedge fund owned over 3.2 million shares in the company with a total value of $538 million. The firm has been investing in the company since 2010.
In August, Morgan Stanley mentioned PepsiCo, Inc. in its investors’ note, expecting the company to outperform in the upcoming quarters and maintaining its ‘Overweight’ rating on the stock.
With stakes worth over $5.2 billion, 65 hedge funds tracked by Insider Monkey’s database owned positions in PepsiCo, Inc. in Q2. In the previous quarter, 62 hedge funds owned PEP stakes worth $4.86 billion.
ClearBridge Investments mentioned PepsiCo, Inc. in its Q2 2022 investor letter. Here is what the firm had to say:
“Also in the stable and predictable cash flow camp, though with a very different business model, global food and beverage company PepsiCo (NYSE:PEP) reported very strong organic growth in the first quarter, driven by healthy price/mix, and raised revenue guidance, while holding EPS guidance. Notably, its beverage business showed expanding margins.”
2. ConocoPhillips (NYSE:COP)
Diamond Hill Capital’s Stake Value: $591,671,000
ConocoPhillips (NYSE:COP) is a Texas-based natural gas liquids company that specializes in the exploration and production of hydrocarbons. In August, Barclays raised its price target on the stock to $153 with an ‘Overweight’ rating on the shares, highlighting the company’s maintenance of its free cash flow yields.
ConocoPhillips does not hold a dividend growth track record but the company has paid uninterrupted dividends to shareholders since 1993. The company currently pays a quarterly dividend of $0.46 per share and shares have an attractive dividend yield of 4.09% as of August 31.
Diamond Hill Capital opened its position in ConocoPhillips during the first quarter of this year, purchasing shares worth $703 million. In Q2, the hedge fund slashed its position in the company by 7%, which dropped its total COP stake to $592 million in value. The company represented 2.58% of the firm’s portfolio.
At the end of Q2, 71 hedge funds tracked by Insider Monkey owned stakes in ConocoPhillips, up from 67 in the previous quarter. The collective value of those stakes was over $2.42 billion. With over 6.7 million shares, Fisher Asset Management owned the largest position in the energy company in Q2.
Diamond Hill Capital mentioned ConocoPhillips in its Q1 2022 investor letter. Here is what the firm had to say:
“We redeployed capital into ConocoPhillips (NYSE:COP), which was trading at a discount to our estimate of intrinsic value and is well positioned over the long run due to its low-risk asset base.”
1. Abbott Laboratories (NYSE:ABT)
Diamond Hill Capital’s Stake Value: $639,592,000
Abbott Laboratories (NYSE:ABT) is a global healthcare company that specializes in medical devices and conducts related research. The company was the second-largest holding of Diamond Hill Capital in Q2. The hedge fund owned over 5.8 million shares in the company, valued at nearly $640 million. It accounted for 2.79% of the fund’s 13F portfolio.
Abbott Laboratories currently offers a quarterly payout of $0.47 per share, raising it by 4% in December 2021. With that increase, the company joined the list of Dividend Kings that have raised their dividends for over 50 years. As of August 31, the stock’s dividend yield stood at 1.82%.
In July, BTIG reiterated its ‘Buy’ rating on Abbott Laboratories, presenting a long-term positive stance on the MedTech industry.
At the end of Q2, 61 hedge funds tracked by Insider Monkey owned stakes in Abbott Laboratories, down from 68 in the previous quarter. Those stakes held a consolidated value of over $3.6 billion.
You can also take a look at Ray Dalio’s Bridgewater Associates Portfolio: Top 10 Dividend Stocks and the 10 Best Renewable Energy Stocks to Buy and Hold for the Next 10 Years
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This article is originally published at Insider Monkey.
