Ken Griffin officially founded Citadel Investment Group in 1990 after years of trading options (including in his college dorm room) and has since become a billionaire. Citadel and other hedge funds file quarterly 13Fs with the SEC, allowing us to develop investment strategies based on this information (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and to track their holdings in a number of categories. Blindly imitating hedge funds often isn’t wise, but we can at least treat ownership by a hedge fund such as Citadel similarly to a stock screen and research any potential buys in more depth. See the full list of stocks Citadel reported owning for December 2012. We can also look for stocks which Griffin owned with high dividend yields; here are five stocks from the 13F with dividend yields of over 3% judging by current prices and recent dividend payments:
One of Citadel’s top picks following heavy buying in Q4 was McDonald’s Corporation (NYSE:MCD), which pays a respectable dividend yield of 3.1%. McDonald’s is also a potential defensive stock given its income potential and the fact that the stock’s beta is only 0.3. However, we wouldn’t recommend it for value investors given its very low growth rates and trailing P/E of 18 (unless one was shorting a more expensive quick service restaurant against it). McDonald’s was the most popular restaurant stock among hedge funds for the fourth quarter of 2012 (find more restaurant stocks hedge funds loved).
Griffin and his team were also buying Avalonbay Communities Inc (NYSE:AVB), a $15 billion residential apartment building REIT, and closed December with 1.7 million shares in their portfolio. D.E. Shaw, managed by billionaire David Shaw, was another major investor in Avalonbay (check out D.E. Shaw’s stock picks). Real estate investment trusts are required to pay out a large share of taxable income to shareholders in order to keep their preferential tax status, generally resulting in fairly high yields. In Avalonbay’s case the dividend yield is 3.4%.
Read on for three more Griffin picks with yields above 3%: