In this article we will take a look at the 10 best safe dividend stocks to buy according to billionaire Dan Loeb. You can skip our detailed analysis of Dan Loeb’s history, investment philosophy, and hedge fund performance, and go directly to the 5 Best Safe Dividend Stocks According to Billionaire Dan Loeb.
Daniel Seth Loeb is the founder and chief executive of Third Point, a value-oriented and event-driven investment company. The billionaire is known for investing in troubled companies with a goal of returning them to profitability. In 2014, he was described as one of the most successful activists in the hedge fund industry. Loeb’s 10 best safe dividend stocks to buy comprise of companies from various industries like Pactiv Evergreen Inc (NASDAQ: PTVE) in the food and beverage industry, UnitedHealth Group Inc (NYSE: UNH) in the health and insurance industry and Microsoft Corporation (NASDAQ: MSFT) in the technology industry.
Loeb worked at private equity firm Warburg Pincus between 1984 and 1987 before joining Island Records as director of corporate development. In this role, he mainly focused on securing debt financing. He then joined a risk arbitrage analyst at Lafer Equity Investors before moving to Jefferies LLC, where he worked as senior vice-president in charge of the company’s debt department. He mainly focused on selling distressed securities, trading bank loans, and bankruptcy analysis in this role. From Jefferies, Loeb moved to Citigroup, where he worked between 1994 and 1995 as vice president in charge of high-yield bond sales.
In 1995, Loeb launched Third Point Management with an initial capital of $3.3 million sourced from family and friends. Under his management and guidance, the company has managed to grow its annual returns by more than 16.2%. In 2012, Third Point Management reported returns of around 21.2% and outperformed the S&P 500’s return of +16.0%.
In 2013, Third Point reported a +25.2% return against the S&P 500’s return of +32.4%. During that year, Loeb was listed among the 40 richest hedge-fund managers and traders in the world by Forbes. In 2014, the hedge fund returned +5.7% against S&P 500 returns of +13.7%.
Late last year, just before the presidential election, Daniel Loeb’s Third Point made a bullish bet on stocks that saw the hedge fund rake in around $400 million in returns.
Investing in dividend stocks is tricky. You can’t just prioritize dividend yields. If a company is offering high yields but failing to invest in its future growth, that hefty dividend might not last for long. On the other hand, companies that invest in their products and services along with maintaining a decent dividend yield are worth taking a look. For example, International Business Machines Corporation (NYSE: IBM) has increased its dividend consistently for the last 26 years. Last month, IBM (NYSE:IBM) increased its quarterly dividend by 0.6%. Forward yield of the stock is 4.63% The company recently agreed to buy a software provider Turbonomic. Last month, analysts at BMO gave a rating of “Market Perform” to International Business Machines Corporation (NYSE: IBM).
Another dividend paying stock is Target Corporation (NYSE: TGT). The company has consistently paid its dividends since 2010. In April, the stock was rated as “Buy” with a price target of $235 by Argus. To promote racial equity Target Corporation (NYSE: TGT) will also spend $2 billion in at Black-owned businesses by 2025
JPMorgan Chase & Co. (NYSE: JPM) is another decent dividend stock to buy. Even though its dividend yield is just 2.19%, the company has hiked its dividend consistently for the last 9 years. After the painful dividend cut in the midst of the financial crisis, JPM is striving to keep its dividend history flawless. JPMorgan Chase & Co. (NYSE: JPM) has consistently increased its dividend from $0.05 in 2010 to $0.90 in April 2021.
Investing in dividend stocks has become extremely important in the current age of financial volatility, which isn’t sparing even the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s now talk about the 10 best safe dividend stocks according to billionaire Dan Loeb. We used Third Point’s Q4’2020 13F holdings data for this analysis.
Best Safe Dividend Stocks To Buy
10. NIKE, Inc. (NYSE: NKE)
Loeb’s Stake Value: $141,470,000
Percent of Dan Loeb’s 13F Portfolio: 1.09%
Number of Hedge Fund Holders: 82
Dividend Yield: 0.83%
NIKE, Inc. (NYSE: NKE) is a U.S multinational corporation specializing in the design, development, production, marketing, and distribution of apparel, footwear, accessories, equipment, and services. It is one of the best safe dividend stocks and also enjoys support from several analysts.
Hilary K Krane, the company’s EVP, CAO & General Counsel, recently sold 15,000 shares of NKE at $133.54 per share on average for a total sum of $2 million.
Citi recently downgraded NIKE, Inc. (NYSE: NKE) from Buy to Neutral due to pressure on its margin and sales in the short-term caused by reduced demand in China due to cotton issues in Xinjiang. The company is also projected to generate less-than-expected returns from its SG&A investments in FY22. However, these pressures are to mount in the short-run and the company is expected to pick up momentum in the long-run.
Loeb has a $141.5 million stake in the company. That’s why NIKE, Inc. (NYSE: NKE) ranks 10th in the list of best safe dividend stocks to buy now according to billionaire Dan Loeb.
In the recently announced financial results of Q4 2020 and FY 2020, NIKE, Inc. (NYSE: NKE) reported reduced revenues amounting to $6.3 billion. The drop was attributed to the closure of stores in North America, EMEA, and APLA due to the pandemic.
However, during the pandemic, the company reported a 75% increase in its digital sales in the quarter. NIKE, Inc. (NYSE: NKE) reported 8% growth in revenue from China for the fiscal year, representing a sixth consecutive year with double-digit currency-neutral growth.
“Nike used to have a very traditional IT infrastructure, which was the starting point for their transformation. Back in 2013 the company had most of their IT in one data center and two distinct IT and software development teams. The infrastructure was organized in a way that all IT solutions, such as Nike.com and Nike apps, were running on the same servers and databases. The result was that any change had to be approved and then deployed with the next release. It was a very manual process, depended on a number of different vendors, and had to be approved by a waterfall process involving both the software and the IT teams. As of 2018, the company has four AWS regions, 150 software engineers, three development locations, and multiple data center locations. In the process, the company decided that they would not just lift and shift their existing applications from their own servers to the public cloud, but instead decided to rethink every single component of their IT organization. The results show that this transformation worked. The organization went from one software deployment every two months to 2.6 deployments per day. Nike went from 90% manual software testing to 100% automated testing, which freed up a lot of developer time. They managed to reduce the time to make small changes on the website and apps from 3 hours to 5 seconds, which means they could react to sports and similar live events. In the past it took more than six months to add a new experience to their digital services, and today it takes one day. In the past they would have a 3-month lead time for new hardware and today they can scale and deploy without any lead time.5 The IT infrastructure now supports 50+ commerce countries versus 6 in 2012, supports 25 languages versus 7, and enables the e-commerce site to access the inventory of 500+ retail stores.
The early move to the cloud and the willingness to adapt to the new environment also allowed Nike to benefit from some significant learnings. For instance, the company first used the Cassandra database when they moved to the cloud. However, due to many technical limitations, it would not allow them to scale for peak demand. Peak demand was becoming a big problem because the Nike SNKRS App would launch products with very limited availability, which meant that millions of people would access the app at the same time. Nike then decided to move to the AWS DynamoDB database (a platform offering), which allowed them to scale up prior to these launches, and thereby spend 98% less than with Cassandra, while offering the same service. In addition, they managed to monitor the launches in real time, which allowed them to react to problems and error messages within seconds. The vast amount of data that is generated within this very short period is now analyzed with machine learning techniques to improve the stability, reliability, and optimization of future launches. The company is working on a number of other efforts that benefit from the cloud environment, such as the implementation of RFID whose data output is managed through the AWS IoT offering.
The benefits of this transformation to the consumer are clear. Nike can now deal with higher demand, deal with sudden spikes in orders, offer better product recommendations, offer more customization, provide better product fulfillment, and more. In addition, the company benefits from a leaner and more efficient IT organization, better product conversion, more feedback data from customers, social integration into products, and ultimately a more satisfied costumer. We think Nike’s continued investment into their modern IT stack will be a key differentiator for their competitive positioning.”
9. S&P Global Inc. (NYSE: SPGI)
Loeb’s Stake Value: $295,857,000
Percent of Dan Loeb’s 13F Portfolio: 2.28%
Number of Hedge Fund Holders: 75
Dividend Yield: 0.80%
S&P Global Inc. (NYSE: SPGI) is a U.S-based publicly-traded company with its headquarters in Manhattan, New York City. SPGI is one of the best safe dividend stocks to buy now.
S&P Global was recently rated Outperform by Baird analyst Jeffrey Meuler mainly based on the ongoing merger with IHS Markit, which is expected to inject new growth. According to Meuler, SPGI has a “best-in-class margin expansion track record,” and its pro forma SPGI-INFO has a lot of potential for its margin expansion.
SPGI ranks 9th in the list of best safe dividend stocks to buy according to billionaire Dan Loeb.
The company plans to conduct extensive stock buybacks to raise its stock value and leverage the current free cash-flow.
Patrick O’Shaughnessy from Raymond James has upgraded the stock from Market Perform to Outperform based on a healthy debt issuance market with elevated leverage and higher rates, driving the amount of debt issued by corporations. S&P Global Inc. (NYSE: SPGI) is also expected to conduct significant stock buybacks after completing the IHS Markit Ltd. (NYSE: INFO) acquisition.
“S&P Global Inc. provides credit ratings, indices, data, and analytics to the financial and commodities markets. The company reported strong financial results due to continued growth in debt issuance. However, the stock declined on investor expectations that issuance will moderate in 2021 due to tough comparisons and potentially higher interest rates.”
8. Microsoft Corporation (NASDAQ: MSFT)
Loeb’s Stake Value: $289,146,000
Percent of Dan Loeb’s 13F Portfolio: 2.22%
Number of Hedge Fund Holders: 258
Dividend Yield: 0.86%
Microsoft Corporation (NASDAQ: MSFT) is a tech giant specializing in the development, manufacturing, licensing, selling, and support for personal computers, consumer electronics, and other related services. Microsoft is one of the best safe dividend stocks according to Loeb.
The company has posted impressive results in recent years, with its total sales from its “commercial cloud” business growing by 33% to $17.7 billion in 2021. This business line comprised products like Azure as well as the company’s cloud version of Office software. The software company reported a 45% growth in sales from Dynamics 365 customer management, which directly competes with Salesforce.com. Dynamics 365 customer management is Microsoft’s business version of Office 365. The product also reported a 15% growth in its user base.
As a long-term investing strategy, Microsoft Corporation (NASDAQ: MSFT) has been trimming its capital allocation to cloud-based software and instead focusing more on artificial intelligence products. To further boost its health care segment, the company recently announced plans to acquire Nuance Communications Inc, an artificial intelligence company in a $16 billion deal.
MSFT ranks 8th in the list of best safe dividend stocks to buy according to billionaire Dan Loeb.
Microsoft recently announced sales amounting to $15.1 billion from its “intelligent cloud.” This is above the $14.92 billion that analysts had projected.
7. Fidelity National Information Services, Inc. (NYSE: FIS)
Loeb’s Stake Value: $302,218,000
Percent of Dan Loeb’s 13F Portfolio: 2.32%
Number of Hedge Fund Holders: 88
Dividend Yield: 1.02%
Fidelity National Information Services, Inc. (NYSE: FIS) is an American company that offers a wide range of products and services in the financial industry. The stock ranks 7th in the list of best safe dividend stocks to buy according to billionaire Dan Loeb.
Recently FIS expanded its payment processing services to South Africa, Nigeria, and Malaysia. FIS will offer payment processing services in Malaysia through its Worldpay payment processing platform. In South Africa and Nigeria, the company will offer the services through a recently announced agreement with Flutterwave.
The stock has received favorable rating and commentary, with Baird analyst David Koning raising his price target from $154 to $165 and naming the stock among his “Fresh Picks.” Fidelity National Information Services, Inc. (NYSE: FIS) has set its 2021 adjusted EPS guidance at $6.20-$6.40.
Baron Funds, in its Q4 2020 investor letter, mentioned Fidelity National Information Services, Inc. (NYSE: FIS). Here is what Baron Funds has to say about Fidelity National Information Services, Inc. in its letter:
“Weakness in IT was largely due to share price declines from payment services provider Fidelity National Information Services, Inc. Fidelity National’s stock underperformed because of revenue headwinds from the pandemic as reduced travel and spending activity led to lower payment processing volumes. Management believes these headwinds are temporary and expects growth to accelerate next year.”
6. UnitedHealth Group Incorporated (NYSE: UNH)
Loeb’s Stake Value: $112,218,000
Percent of Dan Loeb’s 13F Portfolio: 0.86%
Number of Hedge Fund Holders: 91
Dividend Yield 1.27%
UnitedHealth Group Incorporated (NYSE: UNH) is a health care company that offers insurance services and health care products. The company is largest insurance company in terms of net premium. The stock ranks 6th in the list of best safe dividend stocks to buy according to billionaire Dan Loeb.
UnitedHealth Group Incorporated (NYSE: UNH) recently announced its financial results for Q1 2021, in which it reported a 9.9% growth in revenue to $70.2 billion, surpassing analyst projection of $69.1 billion. For 2021, the company has raised its GAAP EPS projections to $17.15 – 17.65 from $16.90 – 17.40, while Non-GAAP EPS projections have been raised to $18.10 – $18.60 from $17.75 – 18.25. Non-GAAP net income is expected to range between $17,200M – 17,750M from an earlier projection of $16,875M – 17,425M.
Like International Business Machines Corporation (NYSE: IBM), Target Corporation (NYSE: TGT), Microsoft Corporation (NASDAQ: MSFT) and JPMorgan Chase & Co. (NYSE: JPM), UnitedHealth Group Incorporated (NYSE: UNH) is a safe dividend stock because of its strong fundamentals and dividend history.
Baron Health Care Fund, in its Q1 2021 investor letter, mentioned UnitedHealth Group Incorporated (NYSE: UNH). Here is what Baron Health Care Fund has to say about UnitedHealth Group Incorporated in its letter:
“Shares of UnitedHealth Group Incorporated reacted positively to more favorable 2021 guidance than previewed at the company’s December 2020 investor day. Medical costs returned to a seasonal baseline, inclusive of COVID-19-related impacts. We consider UnitedHealth a core holding and a way to play positive demographic, population health, and value-based reimbursement trends. Despite its size, we think the company can grow earnings at a mid-teens rate over the long-term.”
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Disclosure: None. 10 Best Safe Dividend Stocks To Buy According to Billionaire Dan Loeb is originally published on Insider Monkey.