November wasn’t good for dividend stocks. Following Donald Trump’s election victory, expectations shifted towards lower taxes, higher growth rates and higher interest rates. Even though lower taxes and higher growth rates are good for dividend stocks, market participants worried that these wouldn’t be enough to ameliorate the negative effects of higher interest rates on the relative attractiveness of dividend stocks. Even though some hedge fund managers mentioned the possibility of 10-year interest rates reaching as high as 6% in the next few years, we believe this is highly unlikely, as there is a surplus of worldwide savings as well as several central banks that are still flooding the markets with cheap money. These forces will keep the long-term interest rates rising quickly and dramatically.
It is a good idea to follow billionaires’ stock picking strategy, as it comes with their vast experience and skill. At Insider Monkey, we followed 62 such billionaires during the third quarter and have compiled a list of five public utilities companies that they love the most. Investors prefer utility stocks over others mainly because of their capability of paying higher and relatively safer dividends. These utility companies are well known for their attractive dividend yields of almost 4% or more. Let’s now take a look at what billionaires think about Exelon Corporation (EXC), American Electric Power Company Inc (AEP), Eversource Energy (ES), Dynegy Inc (DYN), and Great Plains Energy Incorporated (GXP).
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
Great Plains Energy Incorporated (NYSE:GXP) saw the number of funds managed by billionaires holding the stock increase to 9 in the third quarter from 7 in the quarter earlier. The value of their holdings also rose to $553 million from $237 million quarter over quarter. With a dividend yield of 4.04%, this utility stock has returned more than 38% in the last five years. Some of the billionaires reporting stakes in the company in the last round of 13F filings include Israel Englander’s Millennium Management and Steve Cohen’s Point72 Asset Management. Among the smart money investors we track, Great Plains Energy Incorporated (NYSE:GXP) was in the portfolios of 33 funds, which held 8.7% of the company’s float as of September 30.
Dynegy Inc. (NYSE:DYN) was included in the equity portfolios of 8 billionaires at the end of September, which held in aggregate $448 million worth of this stock. Amongst the billionaires we follow, Viking Global Investors managed by Andreas Halvorsen bought more than 2 million shares of this stock during the third quarter, making it the largest buyer of Dynegy Inc. (NYSE:DYN) during the third quarter. Others include Israel Englander’s Millennium Management, which bought 510,309 shares of Dynegy Inc. (NYSE:DYN) as per their latest 13F filing. The stock has lost more than 13% in the last month and is currently trading very near to its yearly low price. As per our database, the value of hedge fund holding in Dynegy Inc. (NYSE:DYN) declined by 24% quarter over quarter, while the number of funds long in this stock also came down to 36 from 43 in the second quarter. They held almost 50% of the company’s float as of September end.
We’ll check out three more top utility picks of billionaires on the next page.
8 funds run by billionaires held stakes in Eversource Energy (NYSE:ES) at the end of September. While the number from our system, increased from 6 in the earlier quarter, the aggregate value of their holdings almost doubled during the September-June period. Millennium Management run by Israel Englander was amongst the top buyers of Eversource Energy (NYSE:ES) during the third quarter. The fund bought more than 1.45 million shares of this company. Formerly known as Northeast Utilities, the company with a market capitalization value of more than $17 billion has a dividend yield of 3.3%. Recently the company finalized the sale of its 50% equity interest in the Elwood Energy Facility to its partner J-Power USA Development Co. Ltd. There was an increase in the number of hedge funds that we track having Eversource Energy (NYSE:ES) in their portfolios by 4, to 20 at the end of the third quarter.
A total of 6 funds managed or launched by billionaire investors reported stakes in American Electric Power Company Inc (NYSE:AEP) as per their latest 13F filings, including D. E. Shaw, and Steve Cohen’s Point72 Asset Management. Overall, these funds held $980 million worth of the company’s stock. American Electric Power Company Inc (NYSE:AEP) sports a dividend yield of 3.88% and the stock is rated as overweight by most of the analysts following it. Though the number of hedge funds holding American Electric Power Company Inc (NYSE:AEP) inched up to 32 during the third quarter, from 27 in the quarter earlier, the value of their holdings declined to $1.27 million from $1.36 million quarter over quarter.
For the quarter ended September 30, Exelon Corporation (NYSE:EXC) holdings amongst billionaires’ funds increased slightly to 6 from 5 in the earlier quarter. D.E Shaw bought 1.377 million shares of the company, making it the fifth largest buyer of Exelon Corporation (NYSE:EXC) during the third quarter. The stock has returned more than 20% in the last one year and has an attractive dividend yield of 3.81%. The public utilities company reported revenues of $9 billion for its most recent quarter ending September up from $6.9 billion reported in the earlier quarter. Exelon Corporation (NYSE:EXC) carries a mean rating of overweight from 23 analysts covering the stock. Amongst the funds that we track, Exelon Corporation (NYSE:EXC) was present in the top ten holdings of Scoria Capital Partners, Stevens Capital Management and Lomas Capital Management as per their latest 13F filings. In all 25 funds held shares worth $781 million in this stock at the end of quarter three.