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Hedge Funds Are Crazy About These Five Dow Jones Dividend Leaders


Tracking the activity of hedge funds is a great way to identify profitable investments that will help you beat the market. Hence, here at Insider Monkey, we gather information regarding stock picks made by these investment firms and analyzing their equity portfolios. By following the moves made by hedge funds closely, our small cap investment strategy has already delivered 131.4% in its first 2.5 years, beating the S&P 500 index by 74%. In the following article we will take a closer look at the five Dow Jones Index’s components with the highest dividend yields and see what hedge funds thought about them. Unlike small cap stocks, equities from the Dow Jones index are favored by those who seek to generate steady returns in the long-term. The index gained 8.16% in 2014 and has grown by 10.84% over the past 52 weeks.

The Dow Jones Industrial Average is comprised of 30 large companies, five of which stand out due to their high dividend yields. Although hedge funds rarely pick stocks based on the dividend yield alone, investors certainly don’t mind getting paid while waiting for capital gains. Unlike the 5 most unpopular Dow stocks presented in a previous article, hedge funds were particularly bullish regarding Pfizer Inc. (NYSE:PFE), McDonald’s Corporation (NYSE:MCD), Merck & Co., Inc. (NYSE:MRK), Verizon Communications Inc. (NYSE:VZ), and Exxon Mobil Corporation (NYSE:XOM).

Pfizer Inc. (NYSE:PFE)

Pfizer Inc. (NYSE:PFE) ranks as the most popular stock with a high dividend yield, as it was included in the equity portfolio of 86 hedge funds last quarter. In addition to offering shareholders an annual dividend yield of 3.24%, the company is favored by investors due to its solid long-term performance, gaining around 97% in the past five years. Although it underperformed compared to the Dow Jones index last year, gaining only 1.66%, Pfizer Inc. (NYSE:PFE) is still very popular among hedge funds. Ken Fisher’s Fisher Asset Management for example, is one of the largest shareholders among the company’s institutional investors, holding a position of 31.19 million shares. Other important firms betting on this stock include Cliff Asness’ AQR Capital Management and Ric Dillon’s Diamond Hill Capital.

Out of the 737 funds we track, 75 held a long positions in McDonald’s Corporation (NYSE:MCD) last quarter. Although its share price dropped by 3.31% in 2014, the stock has gained 4.09% in the past twelve months. Furthermore, several billionaire investors, including Jim Simons, Israel Englander, and Ken Griffin, are betting on the company. Mason Hawkins’ Southeastern Asset Management was particularly bullish regarding the stock, disclosing a stake of 11.92 million shares last quarter. As a large cap company McDonald’s Corporation (NYSE:MCD) might not deliver high returns, yet it offers an annual dividend yield of 3.43%.

In addition to delivering solid returns and beating the Dow Jones Industrial Average last year, Merck & Co., Inc. (NYSE:MRK) offers an annual dividend yield of 3.11%. Hence, it is not surprising to learn that 73 hedge funds held a stake in the company. AQR Capital Management was one of the most optimistic investment firms, as it increased its stake by 70% last quarter, and currently owns 7.48 million shares. Fisher Asset Management was also bullish regarding the company, disclosing ownership of 6.64 million shares as at the end of 2014. Although Merck & Co., Inc. (NYSE:MRK) has the lowest dividend yield among the five stocks presented in this article, hedge funds like the company’s EPS of $4.10 per share, as well as its high profit margins.

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