Billionaire Investors Love These Five Dividend Stocks

Billionaires represent a particularly interesting type of investor, mainly because they have much better skills at picking stocks and vast experience, which justify their large fortunes. At Insider Monkey we follow over 40 funds that are managed or founded by investors that became billionaires and we think it’s a good idea to look at their favorite picks, such as the five stocks that billionaire quants like, many of which can generate substantial gains over the long-term. With this in mind, we have identified five stocks with dividend yields above 2%, in which at least 12 billionaire investors held long positions at the end of June. All of these companies are well known and don’t require in-depth analysis, but let’s take a look at what billionaires think about them and whether or not the overall hedge fund industry agrees with their stances.

Even though investing in large-cap dividend stocks is a safe way to obtain solid returns over the long-term, it is not the best way to beat the market. We have determined that the 50 most popular stocks among hedge funds, which mostly consist of large- and mega-cap stocks, underperformed the market on average by seven basis points per month in our backtests covering the period of 1999-to-2012. On the other hand, the 15 most popular small-caps among these investors generated returns around 95 basis points above the market (see more details about our backtests). In this way, our strategy that involves following these 15 stocks, has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points.

Surprisingly, dividend stocks did not rank among the most popular picks of billionaires. For example, in Allergan PLC (NYSE:AGN), which ranked on the first spot, 24 funds managed by billionaire investors reported long positions, while in Dow Chemical Co (NYSE:DOW), which is their favorite dividend stock, only 13 funds held stakes in it at the end of June. Dan Loeb, Daniel S. Och, and Larry Robbins are only a few of the investors that are bullish on Dow Chemical. The company pays a dividend of $0.42, which gives its stock a yield of 3.53%, one of the highest among large-cap chemical stocks. Dan Loeb‘s Third Point held the largest stake in Dow Chemical Co (NYSE:DOW) among the funds we track, disclosing ownership of 23 million shares as of the end of June. Overall, hedge funds that we follow are bullish on Dow Chemical Co (NYSE:DOW), as 65 of them reported positions equal to almost 10% of the company’s shares.

Microsoft Corporation (NASDAQ:MSFT) comes next, as its stock trails a dividend yield of 3.06%. A total of 14 billionaires held stakes in the tech giant with an aggregate value of $7.14 billion. Microsoft Corporation (NASDAQ:MSFT) was also one of the top picks among hedge funds from our database, being included in the equity portfolios of 107 investors. Billionaire Jeff Ubben‘s ValueAct Capital is by far the largest shareholder of Microsoft Corporation (NASDAQ:MSFT) in our database, owning 75.27 million shares. The fund also has a representative on the company’s board of directors.

Three more dividend stocks popular among the world’s wealthiest investors can be found on the following page.

Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) was included in the equity portfolios of 13 billionaires at the end of June, which held in aggregate $2.59 billion worth of stock. Moreover, in August, Daniel S. Och’s OZ Management reported an increase in its position to 10.17 million shares. Och previously more than doubled his position to 6.27 million shares between April and June. Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT)’s stock has a dividend yield of 2.21%, but its dividend of $0.38 per share was lowered from $1.00 at the beginning of 2015 amid a 17% year-to-date drop in the stock. Among the smart money investors we track, Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) is rather appreciated, as 62 funds reported stakes equal to 28.40% of the company’s float as of the end of June. Billionaire John Paulson’s Paulson & Co. initiated a stake of nearly 12 million shares during the second quarter.

Williams Companies Inc (NYSE:WMB)‘s stock sports the highest dividend yield in our compilation, which amounts to 6.05%, based on the company’s $0.65 quarterly dividend. A total of 13 funds managed or launched by billionaire investors reported stakes in the company in the last round of 13F filings, including Stephen Mandel’s Lone Pine Capital, D. E. Shaw, and James Dinan’s York Capital Management, among others. Overall, these funds held $2.69 billion worth of the company’s stock, out of $10.64 billion held overall by 86 funds from our database. Lone Pine Capital was one of the top shareholders of Williams Companies Inc (NYSE:WMB) among the funds we monitor, with a stake of 13.94 million shares, up by 17% on the quarter.

Finally, Air Products & Chemicals, Inc. (NYSE:APD) also made the list after ten billionaires disclosed long positions in the company, with a total value of $5.36 billion. At the end of June, a total of 76 funds from our database held stakes equal to over 29% of the company’s shares, which ranked the stock among hedge funds’ favorite chemical stocks (see the full list). Investors have a better reason to like Air Products & Chemicals, Inc. (NYSE:APD) aside from its 2.32% dividend yield, and that is the involvement of activist investor Bill Ackman of Pershing Square. Under pressure from Ackman, Air Products & Chemicals, Inc. (NYSE:APD) recently decided to spin off its Materials Technologies unit in a tax-free transaction expected to close in September 2016 (read more details). Ackman, who is also a billionaire investor, owns 20.55 million shares of Air Products and Chemicals, which makes him the largest shareholder.

Disclosure: None