Hedge funds are generally associated with the use of derivatives, leverage, and investments in high-growth stocks. However, contrary to popular perception there are several hedge funds that don’t dabble in derivatives at all, don’t use leverage, and allocate a large part of their portfolios to dividend stocks. Keeping that in mind, we at Insider Monkey decided to analyze the portfolio data of the more than 700 funds we track as of Juen 30 and find the most popular dividend stocks held by hedge funds. In previous posts we have highlighted the top 5 ultra-high dividend stocks owned by hedge funds and the 5 popular energy sector dividend stocks among hedge funds. In this article we are going to reveal the five most popular high dividend stocks among hedge funds.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like hedge funds can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 60 percentage points and returning 118%, while hedge funds themselves have collectively underperformed the market (read the details here).
5. Verizon Communications Inc. (NYSE:VZ)
Investors with Long Positions (as of June 30): 62
Aggregate Value of Investors’ Holdings (as of June 30): $2.77 Billion
The popularity of the telecommunications behemoth Verizon Communications Inc. (NYSE:VZ) among hedge funds increased during the second quarter, even though the stock remained relatively flat. The number of hedge funds that counted the company as one of their investments grew by 3, while the aggregate value of hedge funds’ holdings saw a rise of $563 million during that period. Verizon Communications Inc. (NYSE:VZ) is one of the few stocks that has consistently paid dividends to its investors over the past 25 years, including during the periods when the dot-com crash and financial crisis were going on. The company currently pays out a quarterly dividend of $0.55, which translates into an annual dividend yield of 4.78%. Warren Buffett‘s Berkshire Hathaway was the largest shareholder of Verizon Communications Inc. (NYSE:VZ) among the funds we track, owning 15 million shares at the end of June.
4. Kinder Morgan Inc (NYSE:KMI)
Investors with Long Positions (as of June 30): 64
Aggregate Value of Investors’ Holdings (as of June 30): $2.44 Billion
After a 7.7% fall during the second quarter and a more than 30% drop over the last four months, energy infrastructure company Kinder Morgan Inc (NYSE:KMI) has become one of the most lucrative dividend-paying large-caps, with a quarterly dividend of $0.49, representing an annual dividend yield of 6.01%. Even though the number of hedge funds that owned the stock declined by two, the aggregate value of investments in the company by the funds in our database grew by $855 million during the second quarter. On August 20, analysts at Jefferies Group reiterated their ‘Hold’ rating on the stock, with a $39 price target, which represents a potential 19.5% upside to the stock’s current trading price. Robert Henry Lynch‘s Aristeia Capital more than doubled its stake in Kinder Morgan Inc (NYSE:KMI) during the second quarter, and as of June 30 held over 11.54 million shares of the company.