Wells Fargo & Co (NYSE:WFC), the single largest holding of Warren Buffett’s Berkshire Hatthaway, was dumped from Citadel’s fourth-quarter portfolio. Last quarter, the hedge fund disposed of some 5.2 million WFC shares. The bank is the largest mortgage lender in the United States. Lower loan loss provisions and surging mortgage fee income driven by robust mortgage refinancing and recovering home purchase lending have boosted the bank’s earnings to record high. This trend could be at risk if mortgage rates move higher from the current levels, which still remains unlikely. Citadel’s decision may have been premature, as WFC came out as a winner from the latest round of Fed’s annual stress tests. Its adequate capital adequacy resulted in the Fed’s approving of the bank’s capital plan, which resulted in a 20% dividend hike and a higher share repurchase plan for 2013. The latest dividend hike is the second this year, following an earlier increase of 14% that was put into effect in January 2013. Subject to WFC’s Board approval, the new $0.30 per share quarterly dividend yields 3.1% at the current stock price. WFC is valued at a 40% premium to its book value, which is well above the industry average, but slightly higher than the bank’s average premium over the past five years.
Chevron Corporation (NYSE:CVX), the second-largest integrated energy company, was another stock dumped by Citadel last quarter. The hedge fund had held some 792,000 CVX shares. Chevron Corporation (NYSE:CVX) has a dividend yield of 3.0%, payout ratio of 29%, and five-year annualized dividend growth of 8.5%. This S&P Dividend Aristocrat represents good value with an attractive dividend yield, strong balance sheet, best volume and cash flow growth rates in the industry, and highest profitability per barrel among its peers. The company’s cash position grants the company strong flexibility in case of a commodity price downturn, despite the company’s high outlays on capital projects. With generous cash flows, the company finances annual share buybacks worth $5 billion, which is helping boost the firm’s EPS growth. In fact, over the past three months, Chevron Corporation (NYSE:CVX) has seen positive revisions of both its FY2013 and FY2014 EPS estimates. Still, its long-term EPS CAGR is flat at best, as increased oil supplies, despite the expected acceleration in economic growth, drive oil prices lower.
BlackRock, Inc. (NYSE:BLK), the world’s largest asset manager, was another stock dumped by Citadel in the fourth quarter. The hedge fund had held some 371,000 shares. Griffin’s decision may have proven premature, as BLK has gained 24% since the end of last year. Moreover, earlier this year, the asset manager boosted its dividend by 12%. The stock has been a beneficiary of a positive sentiment toward equities and a conviction that the secular shift into passively-managed ETFs will boost the ETF demand and thus the company’s top and bottom lines. Now, however, as BLK has reached its record high price and its valuation has run up to 16.4x forward earnings, above its industry’s forward multiple of 16.0x, perhaps a time has come for a pause in the stock’s extended rally. Still, BLK’s long-term prospects remain bullish, with analysts forecasting a 12.0% EPS CAGR for the company for the next five years.