Trian Fund Management L.P., co-founded by Nelson Peltz, recently disclosed its equity holdings as of September 30 with the SEC. While Peltz maintains a small stable of stocks primarily composed of the shares of companies in which he has taken activist involvement, the filing revealed a number of notable moves, including among the firm’s top positions. In this article we’ll look at the dividend stocks with yields of at least 2% which are favored by Peltz, which includes one of the newest stocks in his firm’s portfolio.
Hedge funds and other big money managers like Peltz tend to have the largest amounts of their capital invested in large and mega-cap stocks like PepsiCo Inc. (NYSE:PEP) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of 102%, beating the broader market by over 53 percentage points (see the details).
5. Pentair plc. Ordinary Share (NYSE:PNR)
– Shares Owned by Trian Fund (as of September 30): 13.01 Million
– Value of Trian Fund’s Shares (as of September 30): $663.79 Million
Let’s start first with that newer pick of Peltz’s, which is Pentair plc. Ordinary Share (NYSE:PNR). Peltz holds just over 13 million shares of the water systems and equipment manufacturer, with the position first being revealed at the end of the second quarter. At that time, Peltz said Pentair was in a good financial position to acquire companies and diversify its business, thanks to its tax advantages (it has a corporate tax rate in the low-20% range). Trian estimated that Pentair could realize synergies of 5%-to-10% of sales on any acquisition as a result, as its smaller competitors/potential acquisitions all have higher tax rates. In addition to having solid growth potential, the stock also pays a dividend of $0.32 quarterly for a yield of 2.33%. With shares having fallen by over 15% since the day before Trian’s position was revealed, investors can enter at an even lower price than the one at which Trian did, which it called a “great value” at the time. Billionaire Larry Robbins also likes Pentair plc. Ordinary Share (NYSE:PNR), owning 5.84 million shares of the stock on June 30.
4. E.I. Du Pont De Nemours and Co (NYSE:DD)
– Shares Owned by Trian Fund (as of September 30): 25.80 Million
– Value of Trian Fund’s Shares (as of September 30): $1.21 Billion
Despite its headline-making loss in a contentious proxy battle with E. I. Du Pont De Nemours and Co (NYSE:DD)’s management and board earlier this year, Trian added about 1.24 million DuPont shares to its portfolio in the third quarter, showing the firm continues to believe the company is undervalued and has growth potential, even in the hands of management whose recent track record it doesn’t think too highly of. Trian was doubtlessly pleased in early October when it was announced that CEO Ellen Kullman would be stepping down, as she fought Peltz tooth-and-nail into the aforementioned proxy battle (a costly one), rather than work towards concessions as many other companies do with activist investors. The market has reacted positively to Kullman’s departure, with E. I. Du Pont De Nemours and Co (NYSE:DD) shares gaining over 30% since it was announced. With DuPont’s quarterly dividend having been cut to $0.38, the stock’s dividend yield has fallen to 2.27%.
Peltz’s three favorite decent dividend-paying stocks are discussed on the next page.