In this article, we discuss 10 favorite dividend stocks of hedge funds.
According to a study by FactSet, dividend stocks returned 9.7% annually on average while the non-dividend paying stocks returned only 4.18% in the same regard from 1991 to 2015.
The study also found that stocks that increased the dividend payout year after year, outperformed the benchmark for 17 total years during this period. Moreover, dividend paying as well as dividend growing stocks predictably had a lower beta than non-dividend paying ones, making them even less prone to trading volatility.
Dividend stocks are especially suited to a retirement portfolio to generate a steady stream of income and in this sense, they’re more attractive than 10-year-term bonds. As of December 31, 2021, 49% of the stocks in the S&P 500 index had higher dividend yields than US Government’s 10-year debt securities.
However, not all dividend paying stocks are equal. Companies can decline in profitability, go bankrupt and may suspend regular dividend payouts due to financial stress. It is imperative, therefore, to select the best of the best stocks if the goal is to create a stable and consistent passive income.
Hedge funds and retail investors tend to like stocks that offer both dividends and share-price gains. Some examples of such stocks are Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V) and Mastercard Incorporated (NYSE:MA).
Our Methodology
For this article we analyzed the data of 912 hedge funds tracked by Insider Monkey as of the end of the first quarter of 2022. We picked the most popular dividend-paying stocks among these elite money managers.
10. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 84
Merck & Co., Inc. (NYSE:MRK) is a multinational pharmaceutical company based in New Jersey, US. The company has a dividend yield of 3.14% as of June 9 and is set to pay quarterly dividends of $0.69 per share to its shareholders on July 8, in line with previous payouts. The pharmaceutical corporation has been steadily increasing the cash amount it pays in dividends consecutively for the past 12 years.
As of the first quarter of 2022, 84 hedge funds are invested in Merck & Co., Inc. (NYSE:MRK) with Fisher Asset Management being the leading shareholder, holding equity worth $970 million.
On April 12, Barclays analyst Carter Gould raised the price target on Merck & Co., Inc. (NYSE:MRK) to $97 from $94 and kept an ‘Overweight’ rating on the stock. The analyst argues that the Q1 prints are “unlikely to disrupt the momentum of macro-driven rotation to larger cap biopharma.”
Miller Howard Investments, an asset management firm, discussed Merck & Co., Inc. (NYSE:MRK) in their Q3, 2021 investor letter. Here is what it said:
“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We hold three pharmaceutical companies, (which includes) Merck (MRK). All three have strong cash flows and balance sheets, making their high dividends reasonably safe. The investment controversy surrounding these pharma companies is whether they can develop or acquire new products to replace their current blockbuster drugs. The low valuations on these stocks reflects what we believe to be undue pessimism by investors on the prospects for new drugs.”
9. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 97
S&P Global Inc. (NYSE:SPGI) is a financial information and analytics company. It owns and operates S&P Global Ratings and S&P Global Market Intelligence among other ventures.
S&P Global Inc. (NYSE:SPGI) has a dividend yield of 0.99% as of June 8 and its second quarter dividend payout of $0.85 per share is due on June 10, in line with its consistent quarterly payout history. S&P Global Inc. (NYSE:SPGI) has been paying dividends since 1937 and has been increasing its dividend per share consecutively for 48 years.
As of the first quarter of 2022, 97 hedge funds are bullish on the company with TCI Fund Management being the top stakeholder, owning shares worth $2.8 billion.
S&P Global Inc. (NYSE:SPGI) is the majority owner of S&P Dow Jones Indices which maintains the famously followed S&P 500 Index that tracks 500 largest companies. Some of the prominent of these include the likes of Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V) and Mastercard Incorporated (NYSE:MA).
Here is what Cooper Investors, an investing firm, had to say about S&P Global Inc. (NYSE:SPGI) in their investor letter of the first quarter of 2022.
“This quarter, S&P Global announced the successful completion of its acquisition of IHS Markit. The deal makes S&P a global leader across the information services industry. The Fund has been long term shareholders of S&P, building a position back in 2015 when the organisation was still named McGraw-Hill Financial. We saw the initial opportunity as it refocused the business from a publishing and financial conglomerate towards its core data and financial assets. S&P’s credit ratings, benchmarks and analytics businesses in global capital and commodity markets carry leading positions, defensible offerings, consistent growth and high margins – as true today as it was seven years ago. With the increased focus management have applied over a lengthy period we see improved revenue growth, margins and cash flows…” (Click here to see the full text)
8. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Bank of America Corporation (NYSE:BAC) is the second largest financial company in America behind JPMorgan Chase & Co. (NYSE:JPM). It primarily provides services in commercial banking and wealth management and is serving roughly 67 million consumer and small business clients as of April, 2022.
Bank of America Corporation (NYSE:BAC) beat consensus EPS estimates by $0.06 with an Earnings Per Share of $0.80 in the first quarter of 2022. As of the same quarter, 99 hedge funds are bullish on the stock with Berkshire Hathaway, managed by Warren Buffett, being the leading owner of equity in the company with shares worth $41.6 billion.
Bank of America Corporation (NYSE:BAC) has a dividend yield of 2.31% as of June 8. Its second quarter dividend payout is $0.21 per share and is due on June 24.
Bank of America Corporation (NYSE:BAC) was discussed by Aristotle Capital Management in their Q1, 2022 investor letter. Here is what it had to say:
“We first invested in Bank of America during the second quarter of 2013. During our near decade as investors, Bank of America closed the chapter on the legacy issues from acquired Countrywide, including mortgage write-downs and substantial legal charges. In addition, it successfully turned the Merrill Lynch franchise into one of the leading U.S. brokerage and advisory firms. Thanks to what we consider to be a strong management team led by CEO Brian Moynihan, the bank went through years of simplification, improved its cost structure and efficiency ratio, and reduced risk. While we believe Bank of America remains a much-improved market leader, we decided to exit our position and use the proceeds to invest in Brookfield Asset Management.”
7. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 101
Thermo Fisher Scientific Inc. (NYSE:TMO) is a Fortune-500 company that provides scientific instruments, cell cultures and lab equipment. The company has a market cap of $219 billion as of the first quarter of 2022.
Thermo Fisher Scientific Inc. (NYSE:TMO) surprised analysts in the first quarter of 2022, beating consensus estimates on revenue and EPS by significant margins. It outperformed analyst expectations by $1 billion with a revenue of $12 billion and an EPS of $7.25 that outperformed analysts’ consensus by $1.
As of the first quarter of 2022, 101 hedge funds have $7.9 billion worth of equity in Thermo Fisher Scientific Inc. (NYSE:TMO). Fisher Asset Management holds shares worth $1 billion in the company alone.
As of June 8, Thermo Fisher Scientific Inc. (NYSE:TMO) has a dividend yield of 0.21%. The company is scheduled for the next dividend payout to its shareholders on July 15, at $0.30 per share.
Thermo Fisher Scientific Inc. (NYSE:TMO) was highlighted by ClearBridge Investments in their Q4, 2021 investor letter, as a stock that was added to their portfolio in a bid to diversify in the healthcare sector. Here is what they said:
“Improving health remains a key impact theme for the portfolio, and over the past year or so we have increased our exposure to the health care sector, through the addition of Thermo Fisher Scientific, a leading health care tools company, a leading provider of fertility benefit management services to self-insured employers that offers a rare win-win-win for employers, employees, health systems, and doctors, with clear savings and quality improvements.”
6. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 103
The only healthcare and finance company to make it to the list of 10 favorite dividend stocks of hedge funds is UnitedHealth Group Incorporated (NYSE:UNH). It is one of the world’s leading healthcare services and health insurance providers headquartered in Minnesota, US. The company provides insurance plans as well as primary medical, specialty and ambulatory care all across the United States.
As of the first quarter of 2022, 103 hedge funds are invested in UnitedHealth Group Incorporated (NYSE:UNH) with Eagle Capital Management being the top investor, holding shares amounting to $1.48 billion.
On June 8, the company’s board authorized the payment of $1.65 per share in dividends in their quarterly meeting. It is to be paid on June 28 to common stock equity holders of record as of the close of business on June 20.
On May 26, Bernstein analyst Lance Wilkes downgraded UnitedHealth Group Incorporated (NYSE:UNH) to ‘Market Perform’ from ‘Outperform’ with a price target of $561, as part of a general research note on healthcare services in the US. With that said, the analyst is still positive on the sector and believes it is well positioned in an inflationary situation.
For UnitedHealth, however, Wilkes says that while the company endures as the leading value-based healthcare delivery company, his new rating reflects the stock’s robust performance and increases in its comparative earnings-multiple.
Unlike Microsoft Corporation (NASDAQ:MSFT), Visa Inc. (NYSE:V) and Mastercard Incorporated (NYSE:MA), UnitedHealth Group Incorporated (NYSE:UNH) operates and is diversified in more than one sector.
Baron Funds discussed UnitedHealth Group Incorporated (NYSE:UNH) in their Q1, 2022 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH) is a leading diversified health and wellbeing company whose divisions include insurance arm, United Healthcare and healthcare services arm, Optum, which offers care delivery and other services. Shares increased 1.8% on good fourth quarter results with revenues up 12.5% year-over-year, operating margins of 7.5% and EPS up 78% while also reaffirming its 2022 guidance. We believe UnitedHealth leads the health care industry in innovation and execution as evidenced by its strong value proposition leading to Medicare Advantage share gains, strong cost controls, and its leadership position in the shift to value-based care.”
5. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
Number 5 on the list of 10 favorite dividend stocks of hedge funds is JPMorgan Chase & Co. (NYSE:JPM). It is the largest financial company/bank in the US with $3.31 trillion worth of assets under management. It provides services in asset management, wealth management and commercial banking. Fisher Asset Management is the biggest investor among the 110 hedge funds invested in the company as of the first quarter of 2022.
On May 24, Societe Generale analyst Andrew Lim upgraded JPMorgan to ‘Buy’ from ‘Hold’ rating and set a price target of $150, up from $145.
When it comes to dividends, JPMorgan Chase & Co. (NYSE:JPM) has a dividend yield of 3.12% as of June 8. The cash amount JPM has been paying to its shareholders in dividends has consecutively increased over 11 years. The next dividend per share of $1 is scheduled for payment on July 31.
In their Q4, 2021 investor letter, ClearBridge Investments discussed JPMorgan Chase & Co. (NYSE:JPM). Here is what they said:
“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Apple Inc. (NASDAQ:AAPL) is the largest technology company in the world by market cap, which stands at $2.4 trillion as of the first quarter of 2022.
Apple outperformed analysts’ expectations in the first quarter of 2022 and boasted a revenue of $97 billion, exceeding consensus estimates by $3 billion. It also exceeded expectations in EPS and came up with an Earnings per Share of $1.52 beating consensus estimates by $0.09.
ClearBridge Investments discussed Apple in their Q4, 2021 investor letter. Here is what they said:
“Despite these mixed emerging growth results, the ClearBridge Global Growth Strategy outperformed the benchmark due to resilience among our secular and structural growth holdings. The bulk of these contributions came from U.S. mega-cap growth stocks Apple and Microsoft which continued to uniquely act both offensively and defensively as they have through most of the pandemic.”
3. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 136
Mastercard Incorporated (NYSE:MA) is a US-based multinational payment network operating company. Its payment network is widely spread across the globe and the company facilitates electronic transactions between merchants’ banks and the customers’ banks for “Mastercard” brand credit and debit cards.
Here is what Ensemble Capital had to say about Mastercard in their Q1, 2022 investor letter.
“Mastercard (7.6% weight in the Fund): This company literally earns a percent based fee on dollars spent. When inflation increases the prices of goods across the economy, Mastercard’s revenue increases along with inflation. Thus, the company in some respects is perfectly hedged against inflation with their revenue accelerating automatically when inflation surges.”
2. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 159
Visa Inc. (NYSE:V) is another global payment network operator on the list of 10 favorite dividend stocks of hedge funds. It is, in fact, the largest payment network company in the world, followed by Mastercard and like Mastercard.
On May 17, Goldman Sachs analyst Will Nance initiated coverage of Visa Inc. (NYSE:V) with a ‘Buy’ rating on the shares and a price target of $282 which implies an upside of 43%.
As of the first quarter of 2022, 159 hedge funds hold equity in Visa, totaling $28 billion in value. The largest shareholder in the company is TCI Fund Management which owns shares worth $4 billion.
Baron Funds discussed Visa in their investor letter of Q1, 2022 and here is what they had to say:
“Shares of global payment network Visa, Inc. (NYSE:V) were up 2.5% on strong quarterly results with 24% revenue growth and 27% EPS growth. Payment volume grew 20% with notable strength in cross-border volumes as travel activity rebounded from depressed levels. Management raised full-year guidance to reflect high-teens revenue growth. Shares also likely benefited from a “flight to safety” during a volatile quarter for equities. We continue to own the stock due to Visa’s long runway for growth underpinned by the continued migration from cash transactions to card/digital and strong competitive advantages, operating in a duopoly with Mastercard.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is one of the largest technology companies in the world. Some of its most popular products include Windows operating systems, Office 365 productivity software, Xbox gaming console and the search engine called Bing. It is also one of the most diversified companies within the information technology sector.
With 259 hedge funds owning a total equity of $65 billion in Microsoft, the company is the most favorite dividend stock of hedge funds. Fisher Asset Management is the leading stakeholder in the technology titan with a total equity of $8.6 billion.
Unlike most other technology companies, Microsoft does pay dividends to its shareholders and its dividend yield as of June 8 is 0.92%. It has been paying out a dividend cash amount of $0.62 since the last quarter of 2021 and has been consistent in making payments while consecutively growing the rate for the past 20 years.
Microsoft was talked about by Motiwala Capital in their Q4, 2021 investor letter. Here is what they said:
“Microsoft (NASDAQ:MSFT) re-enters our portfolio after a long gap. MSFT sells enterprise and consumer software products as well as hardware products such as the Xbox video game console and Surface laptops. All business segments experienced double-digit revenue growth and earnings per share have compounded in the mid-double digits over the last 5 years. We believe MSFT continues this momentum in the years ahead.”
You can also take a peek at 10 Dividend Stocks with Over 5% Yield and 5 Stocks to Buy and Hold for Over 10 Years According to Ray Dalio
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Disclosure: none. 10 Favorite Dividend Stocks of Hedge Funds is originally published on Insider Monkey.
