David Einhorn is one of the savviest hedge fund managers in the world. Since founding Greenlight Capital in 1996, Einhorn has achieved annual returns of around twice the market’s return. Einhorn did it by taking less risk than the market too. Because Einhorn’s fund shorts more than the average fund and shorting is hard, Einhorn’s long picks have to do very well to offset the short picks. So without further ado, let’s take a closer look at Einhorn’s top three dividend yield stocks and see how well they performed in the third quarter.
But why are we interested in hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually managed to beat the market. In our backtests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (see more details here).
#3 Vodafone Group Plc (ADR) (NASDAQ:VOD)
Number of Hedge Fund Holders (as of June 30): 34
Total Value of Hedge Fund Holdings (as of June 30): $634.18 million
Hedge Fund Holdings as Percent of Float (as of June 30): 0.70%
Greenlight Capital kept its Vodafone Group Plc (ADR) (NASDAQ:VOD) position the same at 639,294 shares from April 1 to June 30. Vodafone Group Plc (ADR) (NASDAQ:VOD) is one of the world’s largest telecoms, with a market capitalization of over $100 billion. The company has mobile networks in 26 countries and is the largest telecommunications provider by percentage of revenue generated in Germany and the United Kingdom.
Vodafone’s shares fell by 12.9% in the third quarter but the company’s 7.45% dividend yield is secure. The company has nearly $17 billion in cash on its balance sheet and has very steady and predictable cash flows. The strong cash flows and piles of cash on its balance sheet allows the company to pay the dividend in good times and bad. As long as the smartphone doesn’t go away, Vodafone will make money and pay a dividend. Jonathon Jacobson‘s Highfields Capital Management increased its position in Vodafone by 26% to 3.77 million shares in the second quarter.
We look at Einhorn’s two favorite dividend stocks on the following page.