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).
Read on for three more Griffin picks with yields above 3%:
Philip Morris International Inc. (NYSE:PM), which markets the Philip Morris brand internationally following the split into PMI and Altria Group Inc (NYSE:MO), was another of Griffin’s dividend picks. Cigarette companies are cash flow machines and in Philip Morris’s case the dividend yield is 3.7%; in general, higher yields but fewer growth opportunities can be found if investors look for U.S. focused companies instead. Billionaire Ken Fisher’s Fisher Asset Management reported a position of 5.7 million shares at the beginning of January (research more stocks Fisher likes).
Citadel nearly doubled the size of its position in Microchip Technology Inc. (NASDAQ:MCHP), a developer and manufacturer of semiconductors with a market capitalization of $7.2 billion. In the fourth quarter of 2012, the company’s revenue was up 26% versus a year earlier but net income was down strongly in percentage terms. Even with the dividend close to 4%, 9% of the total shares outstanding are held short signifying a good deal of skepticism about the company. Clint Carlson’s Carlson Capital more than doubled its own stake in Microchip Technology and owned 1.8 million shares according to its own 13F.
The fund disclosed ownership of almost 3 million shares of Health Care REIT, Inc. (NYSE:HCN), which invests in senior living communities and health care facilities. The real estate investment trust pays the highest yield of the stocks on this list, at 4.6%; with a beta of 0.7 its stock price does tend to move in line with market indices but there is at least some protection from general economic conditions. Renaissance Technologies, whose founder Jim Simons is now a billionaire, had close to 1 million shares in its portfolio at the end of the fourth quarter (find Renaissance’s favorite stocks).
Disclosure: I own no shares of any stocks mentioned in this article.
